The information in this Prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.

Subject to completion, dated June 2, 2014

[DIREXION INVESTMENTS LOGO]

DIREXION SHARES ETF TRUST

PROSPECTUS

1301 Avenue of the Americas (6th Avenue), 35th Floor
New York, New York 10019 866-476-7523

Direxion S&P 500® Volatility Response Shares (VSPY)

(formerly Direxion S&P 500® DRRC Index Volatility Response Shares)

[ ], 2014

The fund offered in this prospectus trades on the NYSE Arca, Inc. (the Exchange).

These securities have not been approved or disapproved by the U.S. Securities and Exchange Commission (SEC) and the U.S.
Commodity Futures Trading Commission (CFTC), nor have the SEC or CFTC passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.

This table describes the fees and expenses that you may pay if you buy or hold shares of the Fund
(Shares). Investors purchasing shares in the secondary market may pay costs (including customary brokerage commissions) charged by their broker.

ANNUAL FUND OPERATINGEXPENSES(1)

(expenses that you pay each year as apercentage of the value of yourinvestment)

Management Fees

0.45%

Distribution and/or Service (12b-1) Fees

0.00%

Other Expenses of the Fund

1.33%

Total Annual Fund Operating Expenses

1.78%

Expense Cap/Reimbursement(2)

(1.33%)

Total Annual Fund OperatingExpenses After ExpenseCap/Reimbursement

0.45%

(1)

Rafferty Asset Management, LLC (Rafferty or the Adviser) has entered into an Operating Expense Limitation Agreement with the
Fund. Under the Operating Expense Limitation Agreement, Rafferty has contractually agreed to cap all or a portion of its management fee and/or reimburse the Fund for Other Expenses through September 1, 2015, to the extent that the Funds
Total Annual Fund Operating Expenses exceed 0.45% (excluding, as applicable, among other expenses, taxes, leverage interest, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions,
expenses incurred in connection with any merger or reorganization and extraordinary expenses such as litigation). Any expense cap is subject to reimbursement by the Fund within the following three years only if overall expenses fall below these
percentage limitations. This agreement may be terminated or revised at any time with the consent of the Board of Trustees.

(2)

In addition, Rafferty has contractually agreed to waive 0.10% of its Management Fees through September 1, 2015, which is not subject to
reimbursement by the Fund. There is no guarantee that the management fee waiver will continue after September 1, 2015. This contractual waiver may be terminated at any time by the Board of Trustees.

Expense Example

The example is intended to help you compare the cost of investing in the Fund with the cost of investing in
other

mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that
your investment has a 5% return each year and that the Funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

1 Year

3 Years

5 years

10 Years

$46

$430

$840

$1,984

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns
over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses
or in the example, affect the Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 133% of the average value of its portfolio.

Principal Investment Strategies

The Fund, under normal circumstances, invests at least 80% of its assets in the securities that comprise
the S&P 500® Volatility Response Index (Index) and/or investments that have economic characteristics that are substantially identical to the economic characteristics of the
securities that comprise the Index. At this time, investments that have economic characteristics that are substantially identical to the economic characteristics of Index securities are limited to depositary receipts.

The Fund may invest up to 20% of its assets in financial instruments in order to gain exposure to the component securities in the Index.
Currently, these financial instruments include may include: futures contracts; options on securities, indices and futures contracts; equity caps, floors and collars; swap agreements; forward contracts; reverse repurchase agreements; and other
financial instruments. On a day-to-day basis, the Fund invests the remainder of its assets in money market funds or short-term debt instruments that have terms-to-maturity of less than 397 days and exhibit high quality credit profiles, including
U.S. government securities and repurchase agreements.

The Index is designed to respond to the volatility of the S&P 500® Index. The Index is composed of equity securities of the S&P 500® Index (the Stock Component) and U.S. Treasury Bills (the
Cash Component). The S&P 500® Index measures the large capitalization segment of the domestic equity market and is composed of stocks of the 500 domestic companies with the
largest capitalization. Volatility is a statistical measurement of the

1

magnitude of asset price fluctuations (increases or decreases in the prices of a group of securities) over time.

The Index responds to volatility by establishing a volatility target which may set at 12.5%, 15%, or 17.5%, and is determined based on the
recent levels of CBOE Volatility Index (VIX®). The Index then reviews several volatility factors of the S&P 500® Index. The
volatility factors of the S&P 500® Index are exponentially weighted with more emphasis placed on the most recent historical periods. The volatility factors of the S&P 500® Index, along with the target volatility levels, determine the Indexs exposure to the Stock Component and the Cash Component. The percentage exposure to the Stock Component is expected to
range between 10% and 100%, and will not exceed 100%. Exposure to the Cash Component is expected to range between 0% and 90%.

As
volatility increases, exposure to the Stock Component will decrease and exposure to the Cash Component will increase. As volatility decreases, exposure to the Stock Component will increase and exposure to the Cash Component will decrease. Based on
certain changes in the volatility factors, the Index may be rebalanced as frequently as daily. However, regardless of whether these changes occur, the Index will rebalance at least monthly.

The following table provides example exposure levels to the Stock Component that the Fund would have at a target volatility level of 17.5%
based on hypothetical volatility calculations.

Target

Volatility

S&P 500®

Index

Volatility

Exposure
to

the Stock

Component*

Exposure to

the Cash

Component

17.5%

10%

100%

0%

15%

100%

0%

25%

49%

51%

50%

12%

88%

75%

10%

90%

100%

10%

90%

*

The Funds exposure to the Stock Component is derived by dividing the square of the target volatility level by the square of the calculated
volatility of the S&P 500® Index.

The Fund
will concentrate its investment (i.e., hold 25% or more of its total assets in the stocks of a particular industry or group of industries) in a particular industry or group of industries to approximately the same extent as the Index is so
concentrated.

The Fund may gain exposure to only a representative sample of the securities in the Index that have aggregate
characteristics similar to those of the Index including exchange traded funds (ETFs) and other investment companies. The Fund seeks to remain fully invested at all times consistent with its investment objective. The Fund repositions its
portfolio in response to assets flowing into or out of the Fund. To the extent the Fund experiences

regular purchases or redemptions of its shares, it may reposition its portfolio more frequently. Additionally, the impact of the Indexs movements will affect whether the Funds
portfolio needs to be re-positioned. For example, if the Index has added or removed a security, the Funds portfolio may have to be re-positioned to account for this change to the Index. These re-positioning strategies typically result in high
portfolio turnover. The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

Principal Investment Risks

An investment in the Fund entails risk. The Fund could lose money or its performance could trail that of
other investment alternatives. The Adviser cannot guarantee that the Fund will achieve its investment objective. It is important that investors closely review all of the risks listed below and understand how these risks interrelate before making an
investment in the Fund. Turbulence in financial markets and reduced liquidity in equity, credit and fixed income markets could negatively affect issuers worldwide, including the Fund. There is the risk that you could lose all or a portion of your
money invested in the Fund.

Adverse Market Conditions Risk

Because the Fund attempts to track the performance of the Index, its performance will suffer during conditions in which the Index declines.

Advisers Investment Strategy Risk

While the Adviser seeks to take advantage of investment opportunities for the Fund that will maximize its investment returns, there is no
guarantee that such opportunities will ultimately benefit the Fund. There is no assurance that the Advisers investment strategy will enable the Fund to achieve its investment objective.

Counterparty Risk

The Fund may invest in financial instruments involving counterparties for the purpose of attempting to gain exposure to a particular group of
securities or an asset class without actually purchasing those securities or investments, or to hedge a position. These financial instruments may include swap agreements. The use of swap agreements and other counterparty instruments involves risks
that are different from those associated with ordinary portfolio securities transactions. For example, the Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. Swap agreements and other counterparty instruments also may be considered to be illiquid. In addition, the Fund may enter into swap agreements that involve a limited number of counterparties, which may increase the
Funds exposure to counterparty credit risk. The Fund does not specifically limit its counterparty risk with respect to any single counterparty. Further, there is a risk that no suitable

2

counterparties will be willing to enter into, or continue to enter into, transactions with the Fund and, as a result, the Fund may not be able to achieve its investment objective.

Credit Risk

The
Fund could lose money if the issuer or guarantor of a debt security goes bankrupt or is unable or unwilling to make interest payments and/or repay principal. Changes in an issuers financial strength or in an issuers or debt
securitys credit rating also may affect a securitys value and thus have an impact on Fund performance.

Debt Instrument
Risk

The Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to
changes in interest rates, credit risk and other factors. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security will repay principal prior to the maturity date. In addition, changes in the
credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuers default on its payment obligations. Such factors may cause the value of an investment in the Fund to decrease.

Derivatives Risk

The Fund uses investment techniques, including investment in derivatives, such as swaps, futures and forward contracts, and options that may be
considered aggressive. Investments in these derivatives may generally be subject to market risks that cause their prices to fluctuate more than an investment directly in a security and may increase the volatility of the Fund. The use of derivatives
may expose the Fund to additional risks such as counterparty risk, liquidity risk and increased correlation risk. When the Fund uses derivatives, there may be imperfect correlation between the value of the underlying reference assets and the
derivative, which may prevent the Fund from achieving its investment objective. The Fund may use a combination of swaps on the Index and swaps on an ETF. The performance of this underlying ETF may not track the performance of the Index due to fees
and other costs borne by the ETF and other factors. Thus, to the extent that the Fund invests in swaps that use an ETF as a reference or underlying asset, the Fund may be subject to greater correlation risk and may not achieve as high a degree of
correlation with the Index as it would if the Fund used swaps that utilized the Index securities as a reference or as underlying assets. Additionally, with respect to the use of swap agreements, if the Index has a dramatic intraday move in value
that causes a material decline in the Funds net asset value (NAV), the terms of the swap agreement between the Fund and its counterparty may allow the counterparty to immediately close out of the transaction with the Fund. In such
circumstances, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Funds investment objective. This may prevent the Fund from achieving its investment
objective particularly if the Index reverses all or a portion of its

intraday move by the end of the day. Any financing, borrowing or other costs associated with using derivatives may also have the effect of lowering the Funds return. In addition, the
Funds investments in derivatives, as of the date of this Prospectus, are subject to the following risks:

Futures Contracts. There may be an imperfect correlation between the changes in market value of the securities held
by the Fund and the prices of futures contracts. There may not be a liquid secondary market for the futures contracts.

Forward Contracts. Forward contracts are two- party contracts pursuant to which one party agrees to pay the
counterparty a fixed price for an agreed upon amount of commodities, securities, or the cash value of the commodities, securities or the securities index, at an agreed upon date. A forward currency contract is an obligation to buy or sell a specific
currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract.

Options. There may be an imperfect correlation between the prices of options and movements in the price of the
securities (or indices) hedged or used for cover, which may cause a given hedge not to achieve its investment objective.

Swap Agreements. Swap agreements are entered into primarily with major global financial institutions for a specified
period which may range from one day to more than one year. In a standard swap transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined reference or underlying
securities or instruments. The gross return to be exchanged or swapped between the parties is calculated based on a notional amount or the return on or change in value of a particular dollar amount invested in a basket of securities representing a
particular index. Interest rate swaps are subject to interest rate and credit risk. Total return swaps are subject to counterparty risk, which relates to credit risk of the counterparty and liquidity risk of the swaps themselves.

Early Close/Trading Halt Risk

An exchange or market may close or issue trading halts on specific securities, or the ability to buy or sell certain securities or financial
instruments may be restricted, which may result in the Fund being unable to buy or sell certain securities or financial instruments. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.

including common stocks, in general are subject to market risks that may cause their prices to fluctuate over time. Fluctuations in the value of equity securities in which the Fund invests will
cause the NAV of the Fund to fluctuate.

High Portfolio Turnover Risk

The Fund may engage in active and frequent trading leading to increased portfolio turnover, higher transaction costs, and the possibility of
increased short-term capital gains (which will be taxable to shareholders as ordinary income when distributed to them) and/or long-term capital gains.

High Volatility in Rising Markets Risk

Pursuant to the Funds investment strategy, in periods of high volatility, the Fund will rebalance its portfolio and decrease exposure to
the Stock Component and increase its exposure to the Cash Component. Due to the Funds increased exposure to the Cash Component during such time periods, the Fund would not be expected to gain the full benefit of rising equity markets if such
market conditions were also accompanied by high volatility.

Index Correlation/Tracking Risk

There is no guarantee that the Fund will achieve a high degree of correlation to the Index and therefore achieve its investment objective. To
achieve a high degree of correlation with the Index, the Fund seeks to rebalance its portfolio to remain consistent with its investment objective. The Fund may have difficulty achieving its investment objective due to fees, expenses, transactions
costs, financing costs related to the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or derivatives held by the Fund. Market disruptions, regulatory
restrictions or extreme volatility will also adversely affect the Funds ability to achieve its investment objective. The Fund may not have investment exposure to all securities in its underlying Index, or its weighting of investment exposure
to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the underlying Index. The Fund may be subject to large movements of assets into and out of
the Fund, potentially resulting in the Fund being over- or under-exposed to its Index. The possibility of the Fund being materially over- or under-exposed to its Index increases on days when the Index is volatile near the close of the trading day.
Activities surrounding periodic index reconstitutions and other index rebalancing or reconstitution events may hinder the Funds ability to meet its investment objective.

Interest Rate Risk

The value of the Funds investments in fixed income securities and securities that provide exposure to fixed income securities will fall
when interest rates rise. Recent events in the fixed-income market may expose the Fund to heightened interest rate risk and volatility.

Liquidity Risk

Some securities held by the Fund, including derivatives, may be difficult to sell or illiquid, particularly during times of market turmoil.
Illiquid securities also may be difficult to value. If the Fund is forced to sell an illiquid security at an unfavorable time or at a price that is lower than Raffertys judgment of the securitys true market value, the Fund may be forced
to sell the security at a loss. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with the Index thus adversely affecting Fund performance.

Market Risk

The
Fund is subject to market risks that can affect the value of its shares. These risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market.

Non-Diversification Risk

The Fund is non-diversified, which means it invests a high percentage of its assets in a limited number of securities. A non-diversified
funds NAV and total return may fluctuate more or fall greater in times of weaker markets than a conventional diversified fund.

Other Investment Companies (including ETFs) Risk

Investments in the securities of other investment companies, including ETFs, may involve duplication of advisory fees and certain other
expenses. By investing in another investment company or ETF, the Fund becomes a shareholder thereof. As a result, Fund shareholders indirectly bear the Funds proportionate share of the fees and expenses indirectly paid by shareholders of the
other investment company or ETF, in addition to the fees and expenses Fund shareholders bear in connection with the Funds own operations. The Funds performance may be magnified positively or negatively by virtue of its investment in
other investment companies. If the investment company or ETF fails to achieve its investment objective, the value of the Funds investment will decline, adversely affecting the Funds performance. In addition, closed end investment company
and ETF shares potentially may trade at a discount or a premium and are subject to brokerage and other trading costs, which could result in greater expenses to the Fund. Finally, because the value of other investment company or ETF shares depends on
the demand in the market, the Adviser may not be able to liquidate the Funds holdings in those shares at the most optimal time, adversely affecting the Funds performance.

Regulatory Risk

The Fund is subject to the risk that a change in U.S. law and related regulations will impact the way the Fund operates, increase the
particular costs of the Funds operations and/or change the competitive landscape.

Tax and Distribution Risk

The Fund has high portfolio turnover which, causes the Fund to generate significant amounts of taxable income.

4

This income is typically short-term capital gain, which is treated as ordinary income when distributed to shareholders, or short-term capital loss. The Fund will generally need to distribute any
net short-term capital gain to satisfy certain tax requirements and avoid federal income tax liability. As a result of the Funds high portfolio turnover, the Fund could make larger and/or more frequent distributions than other ETFs. Potential
investors are urged to consult their own tax advisers for more detailed information.

Rules governing the federal income tax aspects of
certain derivatives, including total return equity swaps, real estate-related swaps, credit default swaps and other credit derivatives, are not entirely clear. Because the Funds status as a regulated investment company might be
affected if the Internal Revenue Service did not accept the Funds treatment of certain transactions involving derivatives, the Funds ability to engage in these transactions may be limited.

U.S. Government Securities Risk

A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of
interest and principal when held to maturity. The market prices for such securities are not guaranteed and will fluctuate. In addition, because many types of U.S. government securities trade actively outside the United States, their prices may rise
and fall as changes in global economic conditions affect the demand for these securities.

Volatility Response Lag Risk

The Funds investments are designed to respond to volatility based on a comparison of historic and recent volatility levels
of the securities in the Stock Component. However, because this calculation takes into account volatility over a period of time, there may be a lag between current volatility and the volatility reflected by the Index and the Funds investments.
As such, in periods of rapidly changing volatility, the Fund may not immediately respond to current volatility.

Special Risks of
Exchange-Traded Funds

Not Individually Redeemable. Shares are not individually redeemable and may be redeemed by the
Fund at NAV only in large blocks known as Creation Units. You may incur brokerage costs purchasing enough Shares to constitute a Creation Unit.

Trading Issues. Trading in Shares on an exchange may be halted due to market conditions or for reasons that, in the view of that
exchange, make trading in Shares inadvisable, such as extraordinary market volatility or other reasons. There can be no assurance that Shares will continue to meet the listing requirements of the exchange on which it trades, and the listing
requirements may be amended from time to time.

Market Price Variance Risk. Individual Shares of the Fund that are listed
for trading on an exchange can be

bought and sold in the secondary market at market prices. The market prices of Shares will fluctuate in response to changes in NAV and supply and demand for Shares. The Adviser cannot predict
whether Shares will trade above, below or at their NAV. Differences between secondary market prices and NAV for Shares may be due largely to supply and demand forces in the secondary market, which forces may not be the same as those influencing
prices for securities or instruments held by the Fund at a particular time. Given the fact that Shares can be created and redeemed in Creation Units, the Adviser believes that large discounts or premiums to the NAV of Shares should not be sustained.
There may, however, be times when the market price and the NAV vary significantly and you may pay more than NAV when buying Shares on the secondary market, and you may receive less than NAV when you sell those Shares. The market price of Shares,
like the price of any exchange-traded security, includes a bid-ask spread charged by the exchange specialists, market makers or other participants that trade the particular security. In times of severe market disruption, the bid-ask
spread often increases significantly. This means that Shares may trade at a discount to NAV and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that you most want to sell your Shares. The
Funds investment results are measured based upon the NAV of the Fund over a period of time. Investors purchasing and selling Shares in the secondary market may not experience investment results consistent with those experienced by those
creating and redeeming directly with the Fund. There is no guarantee that an active secondary market will develop for Shares of the Fund.

Fund Performance

The following performance information provides some indication of the risks of investing in the Fund by
demonstrating how its returns have varied from calendar year to calendar year. The table shows how the Funds average annual returns for the 1-year and since inception periods compare with those of a broad-based market index for the same
periods. The Funds past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future. Updated performance is available on the Funds website at http://www.direxionfunds.com/etf-perform or by calling the Fund toll free at 1-866-476-7523.

The performance shown prior to [ ], 2014 reflects a previous investment objective. The Fund
sought daily investment results, before fees and expenses, of 300% of the performance of S&P Composite 500 Dynamic Rebalancing Risk Control Index. After [ ], 2014, the Funds performance
reflects the new investment objective of seeking daily investment results, before fees and expenses, of 300% of the performance of the S&P 500® Volatility Response Index.

5

Calendar Year Total Return as of December 31

PRINTER INSERT BAR CHART @

31.13% 2013

During
the period of time shown in the bar chart, the Funds highest calendar quarter return was 10.45% for the quarter ended March 31, 2013 and its lowest calendar quarter return was 2.69% for the quarter ended June 30, 2013. The
year-to-date return as of [ ], 2014 was [ ]%.

The S&P 500® Volatility Response Index replaced the S&P Composite 500 Dynamic
Rebalancing Risk Control Index as the broad-based benchmark in connection with the change of the Funds name and investment objective. The index was changed on July [ ], 2014.

After-tax returns are calculated using the historically highest individual federal marginal income tax rates and do not reflect the impact of
state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts (IRAs). In addition, the Return After Taxes on Distributions and Sale of Fund Shares would be higher if the investor recognized a capital loss upon the redemption of Fund shares.

Management

Investment Adviser

Rafferty Asset Management, LLC is the Funds investment adviser.

Portfolio Manager

Paul Brigandi, the Funds Portfolio Manager, is primarily responsible for the day-to-day management of the Fund and has served in this
role since the Funds inception in January 2012.

Purchase and Sale of Fund Shares

The Fund will issue and redeem Shares only to Authorized Participants (typically, broker-dealers) in exchange
for the deposit or delivery of a basket of assets (securities and/or cash) in large blocks, known as Creation Units, each of which is comprised of 50,000 Shares. Retail investors may only purchase and sell Fund Shares on a national securities
exchange through a broker-dealer. Because the Shares trade at market prices rather than NAV, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).

Tax Information

The Fund intends to make distributions that may be taxed as ordinary income or long-term capital gains. Those
distributions will be subject to federal income tax and may also be subject to state and local taxes, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an IRA. Distributions or investments made through
tax-deferred arrangements may be taxed later upon withdrawal. Distributions by the Fund may be significantly higher than those of most other ETFs.

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Shares through a broker-dealer or other financial intermediary (such as a bank or financial
advisor), the Fund and/or the Adviser may pay the intermediary for the sale of Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.

6

OVERVIEW OF THE DIREXION SHARES ETF TRUST

The Direxion Shares ETF Trust (Trust) is a registered investment company offering a number of separate
exchange-traded funds (ETFs). This Prospectus describes the Direxion S&P 500® Volatility Response Shares (the Fund). Rafferty Asset Management, LLC
(Rafferty or Adviser) serves as the investment adviser to the Fund.

Shares of the Fund (Shares) are
listed on the NYSE Arca, Inc. (the Exchange). When Shares are listed and traded on the Exchange, the market prices for the Shares may be different from the intra-day value of the Shares disseminated by the Exchange and from its net asset
value (NAV). Unlike conventional mutual funds, Shares are not individually redeemable securities. Rather, the Fund issues and redeems Shares on a continuous basis at NAV only in large blocks of Shares called Creation Units. A
Creation Unit consists of 50,000 Shares. Creation Units of the Fund are issued and redeemed in cash and/or in-kind for securities included in the relevant underlying index.

Shares may only be purchased from or redeemed with the Fund in Creation Units. As a result, retail investors generally will not be able to
purchase or redeem Shares directly from or with the Fund. Most retail investors will purchase or sell Shares in the secondary market with the assistance of a broker. Thus, some of the information contained in this Prospectus, such as information
about purchasing and redeeming Shares from or with the Fund and all references to the transaction fee imposed on purchases and redemptions, is not relevant to retail investors.

As used in this Prospectus, the terms daily, day, and trading day, refer to the period from the close of
the markets one trading day to the close of the markets on the next trading day.

To pursue
these results, the Fund currently uses aggressive investment techniques such as engaging in swaps transactions. There is no assurance that the Fund will achieve its investment objective and an investment in the Fund could lose money. No single Fund
is a complete investment program.

Changes in Investment Objective. The Funds investment objective is not a fundamental
policy and may be changed by the Funds Board of Trustees without shareholder approval.

7

ADDITIONAL INFORMATION REGARDING
INVESTMENT TECHNIQUES AND POLICIES

Rafferty uses a number of investment techniques in an effort to achieve the stated
investment objective for the Fund. The Fund seeks 100% of the return of its underlying indices.

In seeking to achieve the Funds
investment objective, Rafferty uses statistical and quantitative analysis to determine the investments the Fund makes and the techniques it employs. Rafferty relies upon a pre-determined model to generate orders that result in repositioning the
Funds investments in accordance with its investment objective. Using this approach, Rafferty determines the type, quantity and mix of investment positions that it believes in combination should produce returns consistent with the Funds
investment objective. In general, if the Fund is performing as designed, the return of the underlying index will dictate the return for the Fund. The Fund pursues its investment objective regardless of the market conditions and does not take
defensive positions.

For the Fund, Rafferty seeks a correlation over time of 0.95 or better between the Funds performance
and the performance of its underlying index; a correlation of 1.00 would represent perfect correlation. To do this, the Fund generally may hold a representative sample of the securities in its underlying index. The sampling of securities that are
held by the Fund is intended to maintain high correlation with, and similar aggregate characteristics (e.g., market capitalization and industry weightings) to, the underlying index. The Fund also may invest in securities that are not included
in the underlying index or may overweight or underweight certain components of the underlying index. The Fund may invest up to 20% of its assets in financial instruments in order to gain exposure to the component securities in its underlying index.
Currently, these financial instruments include ETFs and other investment companies, but financial instruments also may include: futures contracts; options on securities, indices and futures contracts;equity caps, floors and collars; swap
agreements; forward contracts; reverse repurchase agreements; and other financial instruments. The Funds assets may be focused in an industry or group of industries to the extent that the Funds underlying index focuses in a particular
industry or group of industries. In addition, the Fund is non-diversified, which means that it may invest in the securities of a limited number of issuers.

The Fund is designed to provide investment returns, before fees and expenses, that track the performance of its underlying index. While
Rafferty attempts to minimize any differences between the investment results of the Fund and the performance of its underlying index, certain factors

will tend to cause the Funds investment results to vary from its investment objective. The Fund may have difficulty in achieving its investment objective due to fees, expenses, transaction
costs, income items, accounting standards, significant purchase and redemption activity by Fund shareholders and/or disruption or a temporary lack of liquidity in the markets for the securities held by the Fund.

Additionally, if the Funds underlying index includes foreign securities or tracks a foreign market index where the foreign market closes
before or after the New York Stock Exchange (NYSE) closes (generally at 4 PM Eastern Time), the performance of the underlying index may differ from the expected performance.

The intra-day value of the Funds shares, otherwise known as the intraday indicative value or IIV, which is
disseminated by the Exchange every 15 seconds throughout the business day, is based on the current market value of the securities and cash required to be deposited in exchange for a Creation Unit on the prior business day. The IIV does not
necessarily reflect the precise composition of the current portfolio of securities held by the Fund at a particular point in time, nor the best possible valuation of the current portfolio. Therefore, the IIV should not be viewed as a
real-time update of the Funds NAV, which is computed only once a day.

8

ADDITIONAL INFORMATION REGARDING RISKS

An investment in the Fund entails risk. The Fund could lose money, or its performance could trail that of other
investment alternatives. Rafferty cannot guarantee that the Fund will achieve its investment objective. It is important that investors closely review and understand these risks before making an investment in the Fund. Turbulence in financial markets
and reduced liquidity in equity, credit and fixed income markets could negatively affect issuers worldwide, including the Fund. The table below provides the risks of investing in the Fund. Following the table, each risk is explained.

9

Adverse Market Conditions Risk

The performance of the Fund is designed to correlate to the performance of an underlying index. As a consequence, the Funds performance
will suffer during conditions which are adverse to its investment objective. This means that if the underlying index has fallen on a given day the Funds performance also should fall.

Advisers Investment Strategy Risk

While the Adviser seeks to take advantage of investment opportunities for the Fund that will maximize their investment returns, there is no
guarantee that such opportunities will ultimately benefit the Fund. The Adviser will aggressively change the Funds portfolios in response to market conditions that are unpredictable and may expose the Fund to greater market risk than
conventional mutual funds or ETFs. There is no assurance that the Advisers investment strategy will enable the Fund to achieve its investment objective.

Counterparty Risk

The Fund may invest in financial instruments involving counterparties for the purpose of attempting to gain exposure to a particular group of
securities or an asset class without actually purchasing those securities or investments, or to hedge a position. Such financial instruments include, but are not limited to, total return, index, and interest rate swap agreements. The Fund will use
short-term counterparty agreements to exchange the returns (or differentials in rates of return) earned or realized in particular predetermined investments or instruments. The Fund will not enter into any agreement involving a counterparty unless
the Adviser believes that the other party to the transaction is creditworthy. The use of swap agreements involves risks that are different from those associated with ordinary portfolio securities transactions. For example, the Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. In addition, the Fund may enter into swap agreements with a limited number of counterparties, and the Fund
may invest in commodity-linked structured notes issued by a limited number of issuers that will act as counterparties, which may increase the Funds exposure to counterparty credit risk. Swap agreements and other counterparty instruments also
may be considered to be illiquid. Further, there is a risk that no suitable counterparties will be willing to enter into, or continue to enter into, transactions with the Fund and, as a result, the Fund may not be able to achieve its investment
objective.

Credit Risk

The Fund could lose money if the issuer or guarantor of a debt security goes bankrupt or is unable or unwilling to make interest payments
and/or repay principal. Changes in an issuers financial strength or in an issuers or debt securitys credit rating also may affect a securitys value and thus have an impact on Fund performance.

Debt Instrument Risk

The Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest
rates, credit risk and other factors. Typically, the value of outstanding debt instruments falls when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter
maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security will repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains
during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuers default on its payment obligations. Such factors may
cause the value of an investment in the Fund to decrease.

Derivatives Risk

The Fund uses investment techniques, including investment in derivatives, such as swaps, futures and forward contracts, and options that may be
considered aggressive. Investments in these derivatives may generally be subject to market risks that cause its price to fluctuate more than an investment directly in a security and may increase the volatility of the Fund. The use of derivatives may
expose the Fund to additional risks such as counterparty risk, liquidity risk and increased correlation risk. When the Fund uses derivatives, there may be imperfect correlation between the value of the underlying reference assets and the derivative,
which may prevent the Fund from achieving its investment objective. The Fund may use a combination of swaps on the underlying index and swaps on an ETF. The performance of this underlying ETF may not track the performance of the underlying index due
to fees and other costs borne by the ETF and other factors. Thus, to the extent that the Fund invest in swaps that use an ETF as a reference or underlying asset, the Fund may be subject to greater correlation risk and may not achieve as high a
degree of correlation with the underlying index as it would if the Fund used swaps that utilized the underlying index securities as a reference or as underlying assets. Additionally, with respect to the use of swap agreements, if the Funds
underlying index has a dramatic intraday move in value that causes a material decline in the Funds NAV, the terms of the swap agreement between the Fund and its counterparty may allow the counterparty to immediately close out of the
transaction with the Fund. In such circumstances, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Funds investment objective. This may prevent the
Fund from achieving its investment objective particularly if the Funds underlying index reverses all or a portion of its intraday move by the end of the day. Any financing, borrowing or other costs associated with using derivatives may also
have the effect of lowering the Funds return. In addition, the Funds investments in derivatives, as of the date of this Prospectus, are subject to the following risks:

10



Futures Contracts. A futures contact is a contract to purchase or sell a particular security, or the cash value of an index, at a specified
future date at a price agreed upon when the contract is made. Under such contracts, no delivery of the actual securities is required. Rather, upon the expiration of the contract, settlement is made by exchanging cash in an amount equal to the
difference between the contract price and the closing price of a security or index at expiration, net of the variation margin that was previously paid.



Forward Contracts. Forward contracts are two-party contracts pursuant to which one party agrees to pay the counterparty a fixed price for an
agreed upon amount of commodities, securities, or the cash value of the commodities, securities or the securities index, at an agreed upon date. A forward currency contract is an obligation to buy or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract.



Options. An option is a contract that gives the purchaser (holder) of the option, in return for a premium, the right to buy from (call) or
sell to (put) the seller (writer) of the option the security or currency underlying the option at a specified exercise price at any time during the term of the option (normally not exceeding nine months). The writer of an option has the obligation
upon exercise of the option to deliver the underlying security or currency upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security or currency.



Options on Futures Contracts. An option on a futures contract provides the holder with the right to enter into a long position
in the underlying futures contract, in the case of a call option, or a short position in the underlying futures contract in the case of a put option, at a fixed exercise price to a stated expiration date. Upon exercise of the option by
the holder, the contract market clearing house establishes a corresponding short position for the writer of the option, in the case of a call option, or a corresponding long position, in the case of a put option.



Swap Agreements. Swap agreements are entered into primarily with major global financial institutions for a specified period which may range
from one day to more than one year. In a standard swap transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined reference or underlying securities or instruments. The
gross return to be exchanged or swapped between the parties is calculated based on a notional amount or the return on or change in value of a particular dollar amount invested in a basket of securities representing a particular index. Interest rate
swaps are subject to interest rate and credit risk. Total return swaps are subject to counterparty risk, which relates to credit

risk of the counterparty and liquidity risk of the swaps themselves.

Early Close/Trading Halt Risk

An exchange or market may close or issue trading halts on specific securities, or the ability to buy or sell certain securities or financial
instruments may be restricted, which may result in the Fund being unable to buy or sell certain securities or financial instruments. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.

Equity Securities Risk

The Funds investments in publicly issued equity securities and securities that provide exposure to equity securities, including common
stocks, in general are subject to market risks that may cause their prices to fluctuate over time. Fluctuations in the value of equity securities in which the Fund invests will cause the NAV of the Fund to fluctuate.

High Portfolio Turnover Risk

The Fund may engage in active and frequent trading leading to increased portfolio turnover, higher transaction costs, and the possibility of
increased short-term capital gains (which will be taxable to shareholders as ordinary income when distributed to them) and/or long-term capital gains.

High Volatility in Rising Markets Risk

Pursuant to the Funds investment strategy, in periods of high volatility, the Fund will rebalance its portfolio and decrease exposure to
the Stock Component and increase its exposure to the Cash Component. Due to the Funds increased exposure to the Cash Component during such time periods, the Fund would not be expected to gain the full benefit of rising equity markets if such
market conditions were also accompanied by high volatility.

Index Correlation/Tracking Risk

There is no guarantee that the Fund will achieve a high degree of correlation to its underlying index and therefore achieve its investment
objective. To achieve a high degree of correlation with its underlying index, the Fund seeks to rebalance its portfolio to remain consistent with its investment objective. The Fund may have difficulty achieving its investment objective due to fees,
expenses, transactions costs, financing costs related to the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or derivatives held by the Fund. Market
disruptions, regulatory restrictions or extreme volatility will also adversely affect the Funds ability to achieve its investment objective. The Fund may not have investment exposure to all securities in its underlying index, or its weighting
of investment exposure to such stocks or industries may be different from that of the index. In addition, the Fund may invest in securities or financial instruments not included in its underlying index. The Fund may be subject to large movements of
assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to its underlying index. The possibility of the Fund being materially over- or under-

11

exposed to its underlying index increases on days when the underlying index is volatile near the close of the trading day. Activities surrounding periodic index reconstitutions and other index
rebalancing or reconstitution events may hinder the Funds ability to meet its investment objective.

Interest Rate Risk

For the Fund, debt securities and securities that provide exposure to debt securities have varying levels of sensitivity to
changes in interest rates. The U.S. is currently in a period of historically low interest rates and it is unclear how much longer interest rates will remain at their current levels. Due to recent events in the fixed-income markets, including
the potential impact of the Federal Reserve Board tapering its quantitative easing program, the Fund may be subject to heightened interest rate risk as a result of a rise in interest rates. In addition, the Fund is subject to the risk that interest
rates may exhibit increased volatility, which could cause the Funds NAV to fluctuate more. A decrease in fixed-income market maker capacity may act to decrease liquidity in the fixed-income markets and act to further increase volatility,
affecting the Funds return. Changes or volatility in interest rates may adversely affect the performance of the Fund. In general, the price of a debt security may fall when interest rates rise and may rise when interest rates fall.
Securities with longer maturities can be more sensitive to interest rate changes. In other words, the longer the maturity of a security, the greater the impact a change in interest rates could have on the securitys price. In addition,
short-term and long-term interest rates do not necessarily move in the same amount or the same direction. Short-term securities tend to react to changes in short-term interest rates, and long-term securities tend to react to changes in long-term
interest rates. The impact of an interest rate changes may be significant for other asset classes as well, whether because of the impact of interest rates on economic activity or because of changes in the relative attractiveness of asset classes due
to changes in interest rates. For instance, higher interest rates may make investments in debt securities more attractive, thus reducing investments in equities.

Liquidity Risk

Some securities held by the Fund, including derivatives, may be difficult to sell or illiquid, particularly during times of market turmoil.
Illiquid securities also may be difficult to value. If the Fund is forced to sell an illiquid security at an unfavorable time or at a price that is lower than Raffertys judgment of the securitys true market value, the Fund may be forced
to sell the security at a loss. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index thus adversely affecting Fund performance.

Market Risk

The Fund is subject to market risks that can affect the value of its shares. These risks include political, regulatory, market and economic
developments, including developments that impact specific economic sectors, industries or segments of the market. The Fund typically

would lose value on a day when its underlying index declines.

Non-Diversification Risk

The Fund is non-diversified. A non-diversified fund invests a high percentage of its assets in a limited number of securities. A
non-diversified funds NAV and total return may fluctuate more or fall greater in times of weaker markets than a diversified mutual fund.

Other Investment Companies (including ETFs) Risk

Investments in the securities of other investment companies, including ETFs, (which may, in turn invest in equities, bonds, and other financial
vehicles) may involve duplication of advisory fees and certain other expenses. By investing in another investment company or ETF, the fund becomes a shareholder of that investment company or ETF. As a result, Fund shareholders indirectly bear the
Funds proportionate share of the fees and expenses indirectly paid by shareholders of the other investment company or ETF, in addition to the fees and expenses Fund shareholders bear in connection with the Funds own operations. As a
shareholder, the Fund must rely on the investment company or ETF to achieve its investment objective. The Funds performance may be magnified positively or negatively by virtue of its investment in other investment companies. If the investment
company or ETF fails to achieve its investment objective, the value of the Funds investment will decline, adversely affecting the Funds performance. In addition, because closed end investment companies and ETFs are listed on national
stock exchanges and are traded like stocks listed on an exchange, their shares potentially may trade at a discount or a premium. Investments in such shares are also subject to brokerage and other trading costs, which could result in greater expenses
to the Fund. Finally, because the value of other investment company or ETF shares depends on the demand in the market, the Adviser may not be able to liquidate the Funds holdings at the most optimal time, adversely affecting the Funds
performance.

Regulatory Risk

The Fund is subject to the risk that a change in U.S. law and related regulations will impact the way the Fund operates, increase the
particular costs of the Funds operations and/or change the competitive landscape.

Tax and Distribution Risk

The Fund has high portfolio turnover which causes the Fund to generate significant amounts of taxable income. This income is typically
short-term capital gain, which is treated as ordinary income when distributed to shareholders, or short-term capital loss. The Fund will generally need to distribute any net short-term capital gain to satisfy certain tax requirements and avoid
federal income tax liability. As a result of the Funds high portfolio turnover, the Fund could make larger and/or more frequent distributions than other ETFs. Potential investors are urged to consult their own tax advisers for more detailed
information.

related swaps, credit default swaps and other credit derivatives, are not entirely clear. Because the Funds status as a regulated investment company might be affected if the
Internal Revenue Service did not accept the Funds treatment of certain transactions involving derivatives, the Funds ability to engage in these transactions may be limited.

U.S. Government Securities Risk

Certain Funds are subject to the risks of investing in U.S government securities. A security backed by the U.S. Treasury or the full faith and
credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. The market prices for such securities are not guaranteed and will fluctuate. In addition, because many types of U.S. government
securities trade actively outside the United States, their prices may rise and fall as changes in global economic conditions affect the demand for these securities.

Volatility Response Lag Risk

The Funds investments are designed to respond to volatility based on a comparison of historic and recent volatility levels of the
securities in the Stock Component. However, because this calculation takes into account volatility over a period of time, there may be a lag between current volatility and the volatility reflected by the Funds index and its investments. As
such, in periods of rapidly changing volatility, the Fund may not immediately respond to current volatility.

Special Risks of
Exchange-Traded Funds

Not Individually Redeemable. Shares are not individually redeemable and may be redeemed by the
Fund at NAV only in large blocks known as Creation Units. You may incur brokerage costs purchasing enough Shares to constitute a Creation Unit.

Trading Issues. Trading in Shares on an exchange may be halted due to market conditions or for reasons that, in the view of that
exchange, make trading in Shares inadvisable, such as extraordinary market volatility or other reasons. There can be no assurance that Shares will continue to meet the listing requirements of the Exchange, and the listing requirements may be amended
from time to time.

Market Price Variance Risk. Individual Shares of the Fund that are listed for trading on an exchange can
be bought and sold in the secondary market at market prices. The market prices of Shares will fluctuate in response to changes in NAV and supply and demand for Shares. The Adviser cannot predict whether Shares will trade above, below or at their
NAV. Differences between secondary market prices and NAV for Shares may be due largely to supply and demand forces in the secondary market, which forces may not be the same as those influencing prices for securities or instruments held by the Fund
at a particular time. Given the fact that Shares can be created and redeemed in Creation Units, the Adviser believes that large discounts or premiums to the NAV of Shares should not be sustained. There may, however, be times when the market price
and the NAV vary significantly and you may pay

more than NAV when buying Shares on the secondary market, and you may receive less than NAV when you sell those Shares. The market price of Shares, like the price of any exchange-traded security,
includes a bid-ask spread charged by the exchange specialists, market makers or other participants that trade the particular security. In times of severe market disruption, the bid-ask spread often increases significantly. This means
that Shares may trade at a discount to NAV and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that you most want to sell your Shares. The Funds investment results are measured based
upon the NAV of the Fund over a period of time. Investors purchasing and selling Shares in the secondary market may not experience investment results consistent with those experienced by those creating and redeeming directly with the Fund. There is
no guarantee that an active secondary market will develop for Shares of the Fund.

A Precautionary Note to Retail Investors.
The Depository Trust Company (DTC), a limited trust company and securities depositary that serves as a national clearinghouse for the settlement of trades for its participating banks and broker-dealers, or its nominee will be the
registered owner of all outstanding Shares of the Fund of the Trust. Your ownership of Shares will be shown on the records of DTC and the DTC Participant broker through whom you hold the Shares. THE TRUST WILL NOT HAVE ANY RECORD OF YOUR OWNERSHIP.
Your account information will be maintained by your broker, who will provide you with account statements, confirmations of your purchases and sales of Shares, and tax information. Your broker also will be responsible for ensuring that you receive
shareholder reports and other communications from the Fund whose Shares you own. Typically, you will receive other services (e.g., average basis information) only if your broker offers these services.

A Precautionary Note to Purchasers of Creation Units. You should be aware of certain legal risks unique to investors purchasing
Creation Units directly from the issuing Fund. Because new Shares may be issued on an ongoing basis, a distribution of Shares could be occurring at any time. As a dealer, certain activities on your part could, depending on the
circumstances, result in your being deemed a participant in the distribution, in a manner that could render you a statutory underwriter and subject you to the prospectus delivery and liability provisions of the Securities Act of 1933, as amended
(Securities Act). For example, you could be deemed a statutory underwriter if you purchase Creation Units from an issuing Fund, break them down into the constituent Shares and sell those Shares directly to customers, or if you choose to
couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. Whether a person is an underwriter depends upon all of the facts and circumstances pertaining to that
persons activities, and the examples mentioned here should not be considered a complete description of all the activities that could cause

13

you to be deemed an underwriter. Dealers who are not underwriters, but are participating in a distribution (as opposed to engaging in ordinary secondary market transactions), and thus
dealing with Shares as part of an unsold allotment within the meaning of Section 4(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities
Act.

A Precautionary Note to Investment Companies. For purposes of the Investment Company Act of 1940, as amended,
(1940 Act) the Fund is a registered investment company, and the acquisition of Shares by other investment companies is subject to the restrictions of Section 12(d)(1) thereof.

The Trust and the Fund have obtained an exemptive order from the U.S. Securities and Exchange Commission (the SEC) allowing a
registered investment company to invest in the Fund beyond the limits of Section 12(d)(1) subject to certain conditions, including that a registered investment company enters into a Participation Agreement with the Trust regarding the terms of
the investment. Any investment company considering purchasing Shares of the Fund in amounts that would cause it to exceed the restrictions under Section 12(d)(1) should contact the Trust.

A Precautionary Note Regarding Unusual Circumstances. The Trust can postpone payment of redemption proceeds for any period during
which (1) the Exchange is closed other than customary weekend and holiday closings, (2) trading on the Exchange is restricted, as determined by the SEC, (3) any emergency circumstances exist, as determined by the SEC, or (4) the
SEC by order permits for the protection of shareholders of the Fund.

UNDERLYING INDEX LICENSORS

Standard and Poors Index. The S&P 500® Volatility Response Index is a
trademark of The McGraw-Hill Companies, Inc., and has been licensed for use by the Trust. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poors, a division of The McGraw-Hill Companies, Inc. (S&P)
or its third party licensors. Neither S&P nor its third party licensors makes any representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the S&P 500® Volatility Response Index to track general stock market performance. S&Ps only relationship to the Fund is
the licensing of certain trademarks and trade names of S&P and the third party licensors and of the S&P 500® Volatility Response Index which are determined, composed and calculated by
S&P or its third party licensors without regard to the Fund. S&P has no obligation to take the needs of the Fund or the owners of the Fund into consideration in determining, composing or calculating the S&P 500® Volatility Response Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Fund or the

timing of the issuance or sale of the Fund or in the determination the NAV of the Fund. S&P has no obligation or liability in connection with the administration, marketing or trading of the
Fund.

NEITHER S&P, ITS AFFILIATES NOR THEIR THIRD PARTY LICENSORS GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE
S&P INDICES OR ANY DATA INCLUDED THEREIN OR ANY COMMUNICATIONS, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATIONS (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS
SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS OR DELAYS THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE MARKS, THE S&P 500® VOLATILITY RESPONSE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P, ITS AFFILIATES OR
THEIR THIRD PARTY LICENSORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE.

HOW
TO BUY AND SELL SHARES

The Fund issues and redeems Shares only in large blocks of Shares called Creation
Units.

Most investors will buy and sell Shares of the Fund in secondary market transactions through brokers. Shares of the Fund that
are listed for trading on the secondary market on the Exchange can be bought and sold throughout the trading day like other publicly traded shares. There is no minimum investment. Although Shares are generally purchased and sold in round
lots of 50,000 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller oddlots at no per-share price differential.

When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you may pay some or all of the
spread between the bid and the offer price in the secondary market on each leg of a round trip (purchase and sale) transaction. In addition, because secondary market transactions occur at market prices, you may pay more than NAV when you buy Shares,
and receive less than NAV when you sell those Shares.

14

The Funds Exchange trading symbol is as follows:

Fund

Symbol

Direxion S&P 500® Volatility Response Shares

VSPY

Share prices are reported in dollars and cents per Share.

Investors may acquire Shares directly from the Fund, and shareholders may tender their Shares for redemption directly to the Fund, only in
Creation Units, as discussed in the Creations, Redemptions and Transaction Fees section below. A Creation Unit consists of 50,000 Shares.

For information about acquiring Shares through a secondary market purchase, please contact your broker. If you wish to sell Shares of the Fund
on the secondary market, you must do so through your broker.

Book Entry. Shares are held in book-entry form, which means
that no stock certificates are issued. The DTC or its nominee is the record owner of all outstanding Shares of the Fund and is recognized as the owner of all Shares for all purposes.

Investors owning Shares are beneficial owners as shown on the records of the DTC or its participants. DTC serves as the securities depository
for all Shares. Participants in the DTC include securities brokers and dealers, banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold in book entry or street name through your brokerage account.

ABOUT YOUR INVESTMENT

Share Price of the Fund

A
funds share price is known as its NAV. The Funds share price is calculated as of the close of regular trading on the NYSE, usually 4:00 p.m. Eastern Time (Valuation Time), each day the NYSE is open for business
(Business Day.) The NYSE is open for business Monday through Friday, except in observation of the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving Day and Christmas Day. NYSE holiday schedules are subject to change without notice.

If the exchange or market on which the Funds investments are primarily traded closes early, the NAV may be calculated prior to its normal
calculation time. Creation/redemption transaction order time cutoffs would also be accelerated.

The value of the Funds assets that
trade in markets outside the United States or in currencies other than the U.S. dollar may fluctuate when foreign markets are open but the Fund is not open for business.

Share price is calculated by dividing the Funds net assets by its shares outstanding.
In calculating its NAV, the Fund generally values its assets on the basis of market quotations, last sale prices, or estimates of value furnished by a pricing service or brokers who make markets in such instruments. If such information is not
available for a security held by the Fund, is determined to be unreliable, or (to the Advisers knowledge) does not reflect a significant event occurring after the close of the market on which the security principally trades (but before the
close of trading on the NYSE), the security will be valued at fair value estimates by the Adviser under guidelines established by the Board of Trustees. Foreign securities, currencies and other assets denominated in foreign currencies are translated
into U.S. Dollars at the exchange rate of such currencies against the U.S. Dollar, as provided by an independent pricing service or reporting agency. The Fund also relies on a pricing service in circumstances where the U.S. securities markets
exceed a pre-determined threshold to value foreign securities held in the Funds portfolio. The pricing service, its methodology or the threshold may change from time to time. Debt obligations with maturities of 60 days or less are valued at
amortized cost.

Fair Value Pricing. Securities are priced at a fair value as determined by the Adviser, under the oversight
of the Board of Trustees, when reliable market quotations are not readily available, the Funds pricing service does not provide a valuation for such securities, the Funds pricing service provides a valuation that in the judgment of the
Adviser does not represent fair value, the Adviser believes that the market price is stale, or an event that affects the value of an instrument (a Significant Event) has occurred since closing prices were established, but before the time
as of which the Fund calculate its NAV. Examples of Significant Events may include: (1) events that relate to a single issuer or to an entire market sector; (2) significant fluctuations in domestic or foreign markets; or
(3) occurrences not tied directly to the securities markets, such as natural disasters, armed conflicts, or significant government actions. If such Significant Events occur, the Fund may value the instruments at fair value, taking into account
such events when it calculates the Funds NAV. Fair value determinations are made in good faith in accordance with procedures adopted by the Board of Trustees. In addition, the Fund may also fair value an instrument if trading in a particular
instrument is halted and does not resume prior to the closing of the exchange or other market.

Attempts to determine the fair value of
securities introduce an element of subjectivity to the pricing of securities. As a result, the price of a security determined through fair valuation techniques may differ from the price quoted or published by other sources and may not accurately
reflect the market value of the security when trading resumes. If a reliable market quotation becomes available for a security formerly valued through fair valuation techniques, Rafferty compares the market quotation to the fair value price to
evaluate the effectiveness of the Funds fair valuation

15

procedures and will use that market value in the next calculation of NAV.

Rule
12b-1 Fees

The Board of Trustees of the Trust has adopted a Distribution and Service Plan (the Plan) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year for certain distribution-related activities and shareholder services.

No 12b-1 fees are currently paid by the Fund, and there are no plans to impose these fees. However, in the event 12b-1 fees are charged in the
future, because the fees are paid out of the Funds assets, over time these fees will increase the cost of your investment and may cost you more than certain other types of sales charges.

SHORT-TERM TRADING

Rafferty expects that some portion of the Funds assets may come from professional money managers and investors who use the Fund as part
of asset allocation and market timing investment strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions. Frequent trading of Shares could increase the rate
of creations and redemptions of Shares and the Funds portfolio turnover, which could involve correspondingly adverse tax consequences to the Funds shareholders. Although the Fund reserves the right to reject any purchase orders or
suspend the offering of Shares, the Fund does not currently impose any trading restrictions on frequent trading nor actively monitor for trading abuses.

CREATIONS, REDEMPTIONS AND TRANSACTION FEES

Creation Units. Investors such as market makers, large investors and institutions who wish to deal in Creation Units directly
with the Fund must have entered into an authorized participant agreement with the principal underwriter and the transfer agent, or purchase through a dealer that has entered into such an agreement. These investors are known as Authorized
Participants. Set forth below is a brief description of the procedures applicable to the purchase and redemption of Creation Units.

Purchase of Creation Units. To purchase Creation Units directly from the Fund, you must deposit with the Fund a basket of
securities and/or cash. Each Business Day, prior to the opening of trading on the Exchange, an agent of the Fund (Index Receipt Agent) will make available through the NSCC a list of the names and number of shares of each security, if
any, to be included in that days creation basket (Deposit Securities). The identity and number of shares of the Deposit Securities required for a Creation Unit will change from time to time. The Fund reserves the right to permit or
require the substitution of an amount of cash  i.e., a cash in lieu amount  to be added to the Balancing Amount (defined below) to replace any Deposit Security that may not be available in sufficient quantity for

delivery, eligible for transfer through the clearing process (discussed below) or the Federal Reserve System or eligible for trading by an Authorized Participant or the investor for which it
is acting. For such custom orders, cash in lieu may be added to the Balancing Amount (defined below). The Balancing Amount and any cash in lieu must be paid to the Trust on or before the third Business Day following the
Transmittal Date. You must also pay a Transaction Fee, described below, in cash.

In addition to the in-kind deposit of
securities, Authorized Participants will either pay to, or receive from, the Fund an amount of cash referred to as the Balancing Amount. The Balancing Amount is the amount equal to the differential, if any, between the market value of
the Deposit Securities and the NAV of a Creation Unit. The Fund will publish, on a daily basis, information about the previous days Balancing Amount. The Balancing Amount may, at times, represent a significant portion of the aggregate purchase
price (or, in the case of redemptions, the redemption proceeds). This is because the mark-to-market value of the financial instruments held by the Fund will be included in the Balancing Amount (not in the Deposit Basket or Redemption Basket).

All purchase orders for Creation Units must be placed by or through an Authorized Participant. Purchase orders will be processed either
through a manual clearing process run at the DTC (Manual Clearing Process) or through an enhanced clearing process (Enhanced Clearing Process) that is available only to those DTC participants that also are participants in the
Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC). Authorized Participants that do not use the Enhanced Clearing Process will be charged a higher Transaction Fee (discussed below). A purchase order
must be received in good order by the transfer agent by 4:00 p.m. Eastern Time, whether transmitted by mail, through the transfer agents automated system, telephone, facsimile or other means permitted under the Participant Agreement, in
order to receive that days NAV per Share. All other procedures set forth in the Participant Agreement must be followed in order for you to receive the NAV determined on that day.

Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit
with the Trust cash in an amount up to 115% of the market value of the missing Deposit Securities. Any such transaction effected with the Trust must be effected using the Manual Clearing Process consistent with the terms of the Authorized
Participant Agreement.

Redemption of Creation Units. Redemption proceeds will be paid either in cash or in-kind with a
basket of securities (Redemption Securities). In most cases, Redemption Securities will be the same as Deposit Securities on a given day. There will be times, however, when the Deposit and Redemption Securities differ. The composition of
the Redemption Securities will be available through the NSCC. The Fund reserves the right to honor a

16

redemption request with a non-conforming redemption basket.

If the value of a
Creation Unit is higher than the value of the Redemption Securities, you will receive from the Fund a Balancing Amount in cash. If the value of a Creation Unit is lower than the value of the Redemption Securities, you will be required to pay to the
Fund a Balancing Amount in cash. If you are receiving a Balancing Amount, the amount due will be reduced by the amount of the applicable Transaction Fee.

As with purchases, redemptions may be processed either through the Manual Clearing Process or the Enhanced Clearing Process. A redemption order
must be received in good order by the transfer agent by 4:00 p.m. Eastern Time, whether transmitted by mail, through the transfer agents automated system, telephone, facsimile or other means permitted under the Participant Agreement, in order
to receive that days NAV per Share. All other procedures set forth in the Participant Agreement must be followed in order for you to receive the NAV determined on that day.

An investor may request a redemption in cash, which the Fund may in its sole discretion permit. Investors that elect to receive cash in lieu of
one or more of the Redemption Securities are subject to an additional charge. Redemptions of Creation Units for cash (when available) and/or outside of the Enhanced Clearing Process also require the payment of an additional charge.

Transaction Fees on Creation and Redemption Transactions. The Fund will impose
Transaction Fees to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units. There is a fixed and a variable component to the total Transaction Fee on transactions in Creation Units. A fixed
Transaction Fee is applicable to each creation and redemption transaction, regardless of the number of Creation Units transacted. A variable Transaction Fee based upon the value of each Creation Unit also is applicable to each redemption
transaction. Purchasers and redeemers of Creation Units of the Fund effected through the Manual Clearing Process are required to pay an additional charge to compensate for brokerage and other expenses. In addition, purchasers of Creation Units are
responsible for payment of the costs of transferring the Deposit Securities to the Trust. However, in no instance will the fees charged exceed 2% of the value of the Creation Units subject to the transaction. Redeemers of Creation Units are
responsible for the costs of transferring securities from the Trust. Investors who use the services of a broker or other such intermediary may pay additional fees for such services. In addition, Rafferty may, from time to time, at its own expense,
compensate purchasers of Creation Units who have purchased substantial amounts of Creation Units and other financial institutions for administrative or marketing services.

The table below summarizes the components of the Transaction Fees.

Direxion Shares ETF Trust

Fixed Transaction Fee

MaximumAdditionalCharge
forPurchases andRedemptions*

In-Kind

Cash

NSCC

Outside NSCC

Outside NSCC

Direxion S&P 500® Volatility Response Shares

$250

Up to 300% of

NSCC Amount

$250

Up to 0.15%

*

As a percentage of the amount invested.

MANAGEMENT OF THE FUND

Rafferty provides investment management services to the Fund. Rafferty has been managing investment companies since 1997.
Rafferty is located at 31301 Avenue of the Americas (6th Avenue), 35th Floor, New York, New York 10019. As of May 31, 2014, the Adviser had approximately $[ ] billion in assets under management.

Under an investment advisory agreement between the Trust and Rafferty, the Fund pays Rafferty fees at an annualized rate based of 0.45% of the
Funds daily net assets. In addition, Rafferty has contractually agreed to waive 0.10% of its Management Fees through September 1, 2015, which is not subject to reimbursement by the Fund. There is no guarantee that the management fee
waiver will continue after

September 1, 2015. This contractual waiver may be terminated at any time by the Board of Trustees.

For the fiscal year ended October 31, 2013, the Adviser received net management fees as a percentage of average daily net assets in the
amount of 0.00% from the Fund.

A discussion regarding the basis on which the Board of Trustees approved the investment advisory
agreement for the Fund is available in the Trusts Annual Report to shareholders for the fiscal year ended October 31, 2013.

Rafferty
has entered into an Operating Expense Limitation Agreement with the Fund. Under this Operating Expense Limitation Agreement, Rafferty has contractually agreed to cap all or a portion of its management fee and/or reimburse the Fund for Other Expenses
through September 1, 2015, to the extent that the Funds Total Annual Fund Operating Expenses exceeds 0.45% (excluding, as applicable, among

17

other expenses, taxes, leverage interest, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions, expenses incurred in
connection with any merger or reorganization and extraordinary expenses such as litigation).

Any expense cap is subject to reimbursement
by the Fund within the following three years only if overall expenses fall below these percentage limitations. Solely at Raffertys option and discretion, Rafferty may pay, reimburse or otherwise assume one or more of the excluded expenses, in
which case such expense will be subject to reimbursement by Rafferty in accordance with the Operating Expense Limitation Agreement. This agreement may be terminated or revised at any time with the consent of the Board of Trustees.

Paul Brigandi, the Funds Portfolio Manager, is primarily responsible for the day-to-day management of the Fund. An investment trading
team of Rafferty employees assists Mr. Brigandi in the day-to-day management of the Fund subject to his primary responsibility and oversight. The Portfolio Manager works with the investment trading team to decide the target allocation of the
Funds investments and on a day-to-day basis, an individual portfolio trader executes transactions for the Fund consistent with its target allocation. The members of the investment trading team rotate among the various series of the Trust,
including the Fund periodically so that no single individual is assigned to a specific Fund for extended periods of time.

Mr. Brigandi has been a Portfolio Manager at Rafferty since June 2004. Mr. Brigandi was previously involved in the equity trading
training program for Fleet Boston Financial Corporation from August 2002 to April 2004. Mr. Brigandi is a 2002 graduate of Fordham University.

The Funds Statement of Additional Information (SAI) provides additional information about the investment team members
compensation, other accounts they manage and their ownership of securities in the Fund.

PORTFOLIO HOLDINGS

A description of the Funds policies and procedures with respect to the disclosure of the
Funds portfolio securities is available in the Funds SAI.

OTHER SERVICE PROVIDERS

Foreside Fund Services, LLC (Distributor) serves as the Funds distributor. U.S. Bancorp Fund
Services, LLC serves as the Funds administrator. Bank of New York Mellon (BNYM) serves as the Funds transfer agent, fund accountant, custodian and index receipt agent. The Distributor is not affiliated with Rafferty or BNYM.

DISTRIBUTIONS

Fund Distributions. The Fund pays out dividends from its net investment income, and distributes any net capital gains, if any, to
its shareholders at least annually. The Fund is authorized to declare and pay capital gain distributions in additional Shares or in cash. The Fund may have high portfolio turnover, which may cause them to generate significant amounts of taxable
income. The Fund will generally need to distribute net short-term capital gain to satisfy certain tax requirements. As a result of the Funds high portfolio turnover, they could need to make larger and/or more frequent distributions than
traditional unleveraged ETFs.

Dividend Reinvestment Service. Brokers may make the DTC book-entry dividend reinvestment
service (Reinvestment Service) available to their customers who are shareholders of the Fund. If the Reinvestment Service is used with respect to the Fund, its distributions of both net income and capital gains will automatically be
reinvested in additional and fractional Shares thereof purchased in the secondary market. Without the Reinvestment Service, investors will receive Fund distributions in cash, except as noted above under Fund Distributions. To determine
whether the Reinvestment Service is available and whether there is a commission or other charge for using the service, consult your broker. Fund shareholders should be aware that brokers may require them to adhere to specific procedures and
timetables to use the Reinvestment Service.

TAXES

As with any investment, you should consider the tax consequences of buying, holding, and disposing of Shares. The tax information in this
Prospectus is only a general summary of some important federal tax considerations generally affecting the Fund and its shareholders. No attempt is made to present a complete explanation of the federal tax treatment of the Funds activities, and
this discussion is not intended as a substitute for careful tax planning. Accordingly, potential investors are urged to consult their own tax advisers for more detailed information and for information regarding any state, local, or foreign taxes
applicable to the Fund and to an investment in Shares.

Fund distributions to you and your sale of your Shares will have tax
consequences to you unless you hold your Shares through a tax-exempt entity or tax-deferred retirement

18

arrangement, such as an individual retirement account or 401(k) plan.

The Fund
intends to qualify each taxable year for taxation as a regulated investment company. If the Fund so qualifies and satisfies certain distribution requirements, the Fund will not be subject to federal income tax on income that is
distributed in a timely manner to its shareholders in the form of income dividends or capital gain distributions.

Taxes on
Distributions. Dividends from the Funds investment company taxable income  generally, the sum of net investment income, the excess of net short-term capital gain over net long-term capital loss, and net gains and losses from certain
foreign currency transactions, if any, all determined without regard to any deduction for dividends paid  will be taxable to you as ordinary income to the extent of its earnings and profits, whether they are paid in cash or reinvested in
additional Shares. However, dividends the Fund pays to you that are attributable to its qualified dividend income (i.e., dividends it receives on stock of most domestic and certain foreign corporations with respect to which it
satisfies certain holding period and other restrictions) generally will be taxed to you, if you are an individual, trust, or estate and satisfy those restrictions with respect to your Shares, for federal income tax purposes, at the rates of 15% for
a single shareholder with taxable income not exceeding $406,750 ($457,600 for married shareholders filing jointly) and 20% for other such shareholders with taxable income exceeding those respective amounts (which will be indexed for inflation
annually). A portion of the Funds dividends also may be eligible for the dividends-received deduction allowed to corporations  the eligible portion may not exceed the aggregate dividends the Fund receives from domestic corporations
subject to federal income tax (excluding real estate investment trusts) and excludes dividends from foreign corporations  subject to similar restrictions; however, dividends a corporate shareholder deducts pursuant to that deduction are
subject indirectly to the federal alternative minimum tax. The Fund does not expect to earn a significant amount of income that would qualify for those maximum rates or that deduction.

Distributions of the Funds net capital gain (which is the excess of net long-term capital gain over net short-term capital loss) that it
recognizes on sales or exchanges of capital assets (capital gain distributions), if any, will be taxable to you as long-term capital gains, at the maximum rates mentioned above if you are an individual, trust, or estate, regardless of
your holding period for the Shares on which the distributions are paid and regardless of whether they are paid in cash or reinvested in additional Shares. The Funds capital gain distributions may vary considerably from one year to the next as
a result of its investment activities and cash flows and the performance of the markets in which it invests. The Fund does not expect to earn a significant amount of net capital gain.

Distributions in excess of the Funds current and accumulated earnings and profits, if
any, first will reduce your adjusted tax basis in your Shares in the Fund and, after that basis is reduced to zero, will constitute capital gain. That capital gain will be long-term capital gain, and thus will be taxed at the maximum rates mentioned
above if you are an individual, trust, or estate if the distributions are attributable to Shares you held for more than one year.

Investors should be aware that the price of Shares at any time may reflect the amount of a forthcoming dividend or capital gain distribution,
so if they purchase Shares shortly before the record date therefor, they will pay full price for the Shares and receive some part of the purchase price back as a taxable distribution even though it represents a partial return of invested capital.

In general, distributions are subject to federal income tax for the year when they are paid. However, certain distributions paid in
January may be treated as paid on December 31 of the prior year.

Because of the possibility of high portfolio turnover, the Fund
may generate significant amounts of taxable income. Accordingly, the Fund may need to make large and/or frequent distributions. A substantial portion of that income typically will be short-term capital gain, which will generally be treated as
ordinary income when distributed to shareholders.

Fund distributions to tax-deferred or qualified plans, such as an IRA, retirement plan
or pension plan, generally will not be taxable. However, distributions from such plans will be taxable to the individual participant notwithstanding the character of the income earned by the qualified plan. Please consult a tax adviser for a more
complete explanation of the federal, state, local and foreign tax consequences of investing in the Fund through such a plan.

Taxes When
Shares are Sold. Generally, you will recognize taxable gain or loss if you sell or otherwise dispose of your Shares. Any gain arising from such a disposition generally will be treated as long-term capital gain if you held the Shares for
more than one year, taxable at the maximum rates (15%/20%) mentioned above if you are an individual, trust, or estate; otherwise, the gain will be treated as short-term capital gain. However, any capital loss arising from the disposition of
Shares held for six months or less will be treated as long-term capital loss to the extent of capital gain distributions, if any, received with respect to those Shares. In addition, all or a portion of any loss recognized on a sale or exchange of
Shares of the Fund will be disallowed to the extent other Shares of the Fund are purchased (whether through reinvestment of distributions or otherwise) within a period of 61 days beginning 30 days before and ending 30 days after the date of the sale
or exchange; in that event, the basis in the newly purchased Shares will be adjusted to reflect the disallowed loss.

19

Holders of Creation Units. A person who purchases Shares of the Fund by
exchanging securities for a Creation Unit generally will recognize capital gain or loss equal to the difference between the market value of the Creation Unit and the persons aggregate basis in the exchanged securities, adjusted for any
Balancing Amount paid or received. A shareholder who redeems a Creation Unit generally will recognize gain or loss to the same extent and in the same manner as described in the immediately preceding paragraph.

Miscellaneous.Backup Withholding. The Fund must withhold and remit to the U.S. Treasury 28% of dividends and capital gain
distributions otherwise payable to any individual or certain other non-corporate shareholder who fails to certify that the social security or other taxpayer identification number furnished to the Fund is correct or who furnishes an incorrect number
(together with the withholding described in the next sentence, backup withholding). Withholding at that rate also is required from the Funds dividends and capital gain distributions otherwise payable to such a shareholder who is
subject to backup withholding for any other reason. Backup withholding is not an additional tax, and any amounts so withheld may be credited against a shareholders federal income tax liability or refunded.

Additional Tax. An individual must pay a 3.8% federal tax on the lesser of (1) the individuals net investment
income, which generally includes dividends, interest, and net gains from the disposition of investment property (including dividends and capital gain distributions the Fund pays and net gains realized on the sale or redemption of Shares), or
(2) the excess of the individuals modified adjusted gross income over a threshold amount ($250,000 for married persons filing jointly and $200,000 for single taxpayers). This tax is in addition to any other taxes due on that
income. A similar tax will apply for those years to estates and trusts. Shareholders should consult their own tax advisers regarding the effect, if any, this provision may have on their investment in Fund shares.

Basis Determination. A shareholder who wants to use the average basis method for determining basis in Shares he or she acquires after
December 31, 2011 (Covered Shares), must elect to do so in writing (which may be electronic) with the broker through which he or she purchased the Shares. A shareholder who wishes to use a different IRS-acceptable method for basis
determination (e.g., a specific identification method) may elect to do so. Fund shareholders are urged to consult with their brokers regarding the application of the basis determination rules to them.

You may also be subject to state and local taxes on Fund distributions and dispositions of Shares.

Non-U.S. Shareholders. A non-U.S. shareholder is an investor that, for federal tax purposes, is a nonresident alien
individual, a foreign corporation or a foreign estate or trust. Except where discussed otherwise, the following disclosure

assumes that a non-U.S. shareholders ownership of Shares is not effectively connected with a trade or business conducted by such non-U.S. shareholder in the United States and does not
address non-U.S. shareholders who are present in the United States for 183 days or more during the taxable year. The tax consequences to a non-U.S. shareholder entitled to claim the benefits of an applicable tax treaty may be different from those
described herein. Non-U.S. shareholders should consult their tax advisers with respect to the particular tax consequences to them of an investment in the Fund.

Withholding. Dividends paid by the Fund to non-U.S. shareholders will be subject to withholding tax at a 30% rate or a reduced rate
specified by an applicable income tax treaty to the extent derived from investment income (other than qualified interest income or qualified short-term capital gains, as described below). In order to obtain a reduced rate of
withholding, a non-U.S. shareholder will be required to provide an IRS Form W-8BEN (or substitute form) certifying its entitlement to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who
provides an IRS Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. shareholders conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to
regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder. A non-U.S. corporations earnings and profits attributable to such dividends may also be subject to additional branch profits tax imposed at a rate of
30% (or lower treaty rate).

A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other applicable form may be subject to
backup withholding at the appropriate rate. See the discussion of backup withholding under Miscellaneous above.

Exemptions
from Withholding. In general, federal income tax will not apply to gain realized on the sale or other disposition of Shares or to any Fund distributions reported as capital gain dividends, short-term capital gain dividends, or interest-related
dividends.

The exemption for short-term capital gain dividends and interest-related dividends applies only with respect to dividends
with respect to the Funds current taxable year ending on or before October 31, 2014. Short-term capital gain dividends are dividends that are attributable to qualified short-term gain the Fund realizes (generally,
the excess of the Funds net short-term capital gain over long-term capital loss for a taxable year, computed with certain adjustments). Interest-related dividends are dividends that are attributable to qualified net interest
income from U.S. sources. Depending on its circumstances, the Fund may report all, some or none of its potentially eligible dividends as short-term capital gain dividends and interest-related dividends and/or treat such dividends, in whole or
in part, as ineligible for this exemption from withholding. To qualify for the exemption, a non-U.S. shareholder will need to comply

20

with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or substitute form). In the case of shares held through an
intermediary, the intermediary may withhold even if the Fund designates the payment as a short-term capital gain dividend or an interest-related dividend. Non-U.S. shareholders should contact their intermediaries with respect to the application of
these rules to their accounts.

Foreign Account Tax Compliance Act (FATCA). Under FATCA, foreign financial
institutions (FFIs) or non-financial foreign entities (NFFEs) that are Fund shareholders may be subject to a generally nonrefundable 30% withholding tax on (1) income dividends the Fund pays after
June 30, 2014, and (2) certain capital gain distributions and the proceeds of a redemption of Shares the Fund pays after December 31, 2016. As discussed more fully in the Funds Statement of Additional Information under
Taxes, the FATCA withholding tax generally can be avoided (a) by

an FFI, if it reports certain information regarding direct and indirect ownership of financial accounts U.S. persons hold with the FFI and (b) by an NFFE, if (i) it certifies that it
has no substantial U.S. persons as owners or (ii) it does have such owners and reports information relating to them to the withholding agent. The U.S. Treasury has negotiated intergovernmental agreements (IGAs) with certain
countries and is in various stages of negotiations with other foreign countries with respect to one or more alternative approaches to implement FATCA; entities in those countries may be required to comply with the terms of the IGA instead of
Treasury regulations. Non-U.S. shareholders should consult their own tax advisers regarding the application of these requirements to their own situation and the impact thereof on their investment in the Fund. More information about taxes is in the
Funds SAI.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the financial performance of the Fund listed below for the periods indicated.
The information set forth below was audited by Ernst & Young LLP whose report, along with the Funds financial statements, is included in the annual and semi-annual shareholder reports, which are available upon request and incorporated
by reference into the Funds SAI. Certain information reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions).

[Financial Highlights from 2.28.14 for the Direxion S&P 500® DRRC Index Volatility Response Shares to be inserted by amendment]

21

PROSPECTUS

[DIREXION INVESTMENTS LOGO]

1301 Avenue of the Americas (6th Avenue), 35th Floor New York, New York
10019 866-476-7523

The Funds SAI contains more information on the Fund and its investment policies. The SAI is incorporated in this Prospectus by reference
(meaning it is legally part of this Prospectus). A current SAI is on file with the Securities and Exchange Commission (SEC).

Annual and Semi-Annual Reports to Shareholders:

The Funds reports will provide additional information on the Funds investment holdings, performance data and a letter discussing
the market conditions and investment strategies that significantly affected the Funds performance during that period.

To
Obtain the SAI or Fund Reports Free of Charge:

Write to:

Direxion Shares ETF Trust

1301 Avenue of the Americas (6th Avenue), 35th Floor

New York, New York 10019

Call:

866-476-7523

By Internet:

www.direxionfunds.com

These documents and other information about the Fund can be reviewed and copied at the SEC Public
Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. Reports and other information about the Fund may be viewed on screen or downloaded from the EDGAR
Database on the SECs website at http://www.sec.gov. Copies of these documents may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SECs Public
Reference Section, Washington, D.C. 20549-0102.

SEC File Number: 811-22201

The information in this Statement of Additional Information is not complete and may be
changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion,
dated June 2, 2014

DIREXION SHARES ETF TRUST

STATEMENT OF ADDITIONAL INFORMATION

1301 Avenue of the Americas (6th Avenue), 35th Floor New York, New York 10019 866-476-7523

The Direxion Shares ETF Trust (Trust) is an investment company that offers shares of a variety of exchange-traded funds
including the Direxion S&P 500® Volatility Response Shares (the Fund) to the public. The shares of the Fund (Shares) offered in this Statement of Additional
Information (SAI) trade on the NYSE Arca, Inc.

Direxion S&P 500® Volatility Response Shares (VSPY)

(formerly Direxion S&P 500® DRRC Index Volatility Response Shares)

This SAI, dated [ ], 2014, is not a prospectus. It should be read in
conjunction with the Funds prospectus dated [ ], 2014 (Prospectus). This SAI is incorporated by reference into the Prospectus. In other words, it is legally part of the Prospectus. To receive a copy of the
Prospectus, without charge, write or call the Trust at the address or telephone number listed above.

The Trust is a Delaware statutory trust organized on April 23, 2008 and is registered with the Securities and Exchange Commission
(SEC) as an open-end management investment company under the Investment Company Act of 1940, as amended (1940 Act). The Trust currently consists of [ ] separate series or Funds.

The Fund seeks to provide investment results, before fees and expenses, which correspond to the performance of its underlying index.

The Fund issues and redeems Shares only in large blocks of Shares called Creation Units. Most investors will buy and sell Shares of
the Fund in secondary market transactions through brokers. Shares of the Fund are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day like other publicly traded shares. There is no
minimum investment. Although Shares are generally purchased and sold in round lots of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller odd lots, at no per-share price differential.
Investors may acquire Shares directly from the Fund, and shareholders may tender their Shares for redemption directly to the Fund, only in Creation Units of 50,000 Shares, as discussed in the Purchases and Redemptions section below.

The Fund offered in this SAI trades on the NYSE Arca, Inc. (the Exchange).

CLASSIFICATION OF THE FUND

The Fund is a non-diversified series of the Trust pursuant to the 1940 Act. The Fund is considered non-diversified
because a relatively high percentage of its assets may be invested in the securities of a limited number of issuers. To the extent that the Fund assumes large positions in the securities of a small number of issuers, the Funds net asset value
(NAV) may fluctuate to a greater extent than that of a diversified company as a result of changes in the financial condition or in the markets assessment of the issuers, and the Fund may be more susceptible to any single economic,
political or regulatory occurrence than a diversified company.

The Fund intends to meet certain tax-related diversification standards at
the end of each quarter of its taxable year.

EXCHANGE LISTING AND TRADING

Shares of the Fund are currently listed on the Exchange and may trade at prices that differ to some degree from its NAV. There can be no
assurance that the requirements of the Exchange necessary to maintain the listing of Shares of the Fund will continue to be met. The Exchange may, but is not required to, remove the Shares of the Fund from listing if (i) following the initial
12-month period beginning at the commencement of trading of the Fund, there are fewer than 50 beneficial owners of the Shares of the Fund for 30 or more consecutive trading days; (ii) the value of the underlying index is no longer calculated or
available; or (iii) such other event shall occur or condition exist that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. The Exchange will remove the Shares of the Fund from listing and trading upon
termination of the Fund.

As is the case of other stocks traded on each Exchange, brokers commissions on transactions will be based
on negotiated commission rates at customary levels. The Trust reserves the right to adjust the price levels of the Shares in the future to help maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock
splits or reverse stock splits, which would have no effect on the net assets of the Fund.

The trading prices of the Funds shares in
the secondary market generally differ from the Funds daily NAV per share and are affected by market forces such as supply and demand, economic conditions and other factors. Rafferty Asset Management, LLC (Rafferty or
Adviser) may, from time to time, make payments to certain market makers in the Trusts shares. Information regarding the intraday value of shares of the Fund, also known as the intraday indicative value
(IIV), is disseminated every 15 seconds throughout the trading day by the national securities exchange on which the Fund is listed or by market data vendors or other information providers. The IIV is based on the current market value of
the securities and cash required to be deposited in exchange for a Creation Unit. The IIV does not necessarily reflect the precise composition of the current portfolio of securities held by the

1

Fund as a particular point in time, nor the best possible valuation of the current portfolio. Therefore, the IIV should not be viewed as a real-time update of the NAV, which is
computed only once a day. The IIV is generally determined by using both current market quotations and/or price quotations obtained from broker-dealers that may trade in the portfolio securities held by the Fund. The quotations of certain Fund
holdings may not be updated during U.S. trading hours is such holdings do not trade in the U.S. The Fund is neither involved in, nor responsible for, the calculation or dissemination of the IIV and makes no representations or warranty as to its
accuracy.

INVESTMENT POLICIES AND TECHNIQUES

The Fund generally invests at least 80% of its net assets (plus any borrowings for investment purposes) in the securities of its underlying
index and/or investments that have economic characteristics that are substantially identical to the economic characteristics of the securities of their respective Index. The Fund may also invest up to 20% of its assets in financial instruments that
provide exposure to its underlying index, which include: futures contracts; options on securities, indices and futures contracts; equity caps; collars and floors; swap agreements; forward contracts; short positions; reverse purchase agreements;
exchange-traded funds (ETFs) and other financial instruments. The Fund also generally holds money market funds or short-term debt instruments that have terms-to-maturity of less than 397 days and exhibit high quality credit profiles,
including U.S. government securities and repurchase agreements. In particular, the Fund seeks to track the following underlying index:

Fund

Index or Benchmark

Direxion S&P 500® Volatility Response Shares

S&P 500® Volatility Response
Index

With the exception of limitations described in the Investment Restrictions section below,
the Fund may engage in the investment strategies discussed below. There is no assurance that any of these strategies or any other strategies and methods of investment available to the Fund will result in the achievement of the Funds objective.

This section provides a description of the securities in which the Fund may invest to achieve its investment objective, the strategies it
may employ and the corresponding risks of such securities and strategies. The greatest risk of investing in an ETF is that its returns will fluctuate and you could lose money. Recent events in the financial sector have resulted, and may continue to
result, in an unusually high degree of volatility in the financial markets. Both domestic and foreign equity markets could experience increased volatility and turmoil, with issuers that have exposure to the real estate, mortgage and credit markets
particularly affected, and it is uncertain whether or for how long these conditions could continue. The U.S. government has already taken a number of unprecedented actions designed to support certain financial institutions and segments of the
financial markets that have experienced extreme volatility, and in some cases a lack of liquidity.

Reduced liquidity in equity, credit and
fixed-income markets may adversely affect many issuers worldwide. This reduced liquidity may result in less money being available to purchase raw materials, goods and services from emerging markets, which may, in turn, bring down the prices of these
economic staples. It may also result in emerging market issuers having more difficulty obtaining financing, which may, in turn, cause a decline in their stock prices. These events and possible continued market turbulence may have an adverse effect
on the Fund.

Bank Obligations

Money Market Instruments. The Fund may invest in bankers acceptances, certificates of deposit, demand and time deposits, savings
shares and commercial paper of domestic banks and savings and loans that have assets of at least $1 billion and capital, surplus, and undivided profits of over $100 million as of the close of their most recent fiscal year, or instruments that are
insured by the Bank Insurance Fund or the Savings Institution Insurance Fund of the Federal Deposit Insurance Corporation (FDIC). The Fund also may invest in high quality, short-term, corporate
debt obligations, including variable rate demand notes, having a maturity of one year or less. Because there is no secondary trading market in demand notes, the inability of the issuer to make required payments could impact adversely the Funds
ability to resell when it deems advisable to do so.

The Fund may invest in foreign money market instruments, which typically involve more
risk that investing in U.S. money market instruments. See Foreign Securities below. These risks include, among others, higher brokerage commissions, less public information, and less liquid markets in which to sell and meet large
shareholder redemption requests.

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Bankers Acceptances. Bankers acceptances generally are negotiable instruments
(time drafts) drawn to finance the export, import, domestic shipment or storage of goods. They are termed accepted when a bank writes on the draft its agreement to pay it at maturity, using the word accepted. The bank is, in
effect, unconditionally guaranteeing to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset, or it may be sold in the secondary market at the going rate of interest for a
specified maturity.

Certificates of Deposit (CDs). The FDIC is an agency of the U.S. government that insures the
deposits of certain banks and savings and loan associations up to $250,000 per deposit. The interest on such deposits may not be insured to the extent this limit is exceeded. Current federal regulations also permit such institutions to issue insured
negotiable CDs in amounts of $250,000 or more without regard to the interest rate ceilings on other deposits. To remain fully insured, these investments must be limited to $250,000 per insured bank or savings and loan association.

Commercial Paper. Commercial paper includes notes, drafts or similar instruments payable on demand or having a maturity at the time of
issuance not exceeding nine months, exclusive of days of grace or any renewal thereof. The Fund may invest in commercial paper rated A-l or A-2 by Standard &
Poors® Ratings Services (S&P®) or Prime-1 or Prime-2 by Moodys Investors Service®, Inc. (Moodys), and in other lower quality commercial paper.

Caps, Floors and Collars

The Fund may enter into caps, floors and collars relating to securities, interest rates or currencies. In a cap or floor, the buyer pays a
premium (which is generally, but not always a single up-front amount) for the right to receive payments from the other party if, on specified payment dates, the applicable rate, index or asset is greater than (in the case of a cap) or less than (in
the case of a floor) an agreed level, for the period involved and the applicable notional amount. A collar is a combination instrument in which the same party buys a cap and sells a floor. Depending upon the terms of the cap and floor comprising the
collar, the premiums will partially or entirely offset each other. The notional amount of a cap, collar or floor is used to calculate payments, but is not itself exchanged. The Fund may be both buyers and sellers of these instruments. In addition,
The Fund may engage in combinations of put and call options on securities (also commonly known as collars), which may involve physical delivery of securities. Like swaps, caps, floors and collars are very flexible products. The terms of the
transactions entered by The Fund may vary from the typical examples described here.

Corporate Debt Securities

The Fund may invest in investment grade corporate debt securities of any rating or maturity. Investment grade corporate bonds
are those rated BBB or better by S&P® or Baa or better by Moodys. Securities rated BBB by S&P® are considered investment
grade, but Moodys considers securities rated Baa to have speculative characteristics. See Appendix A for a description of corporate bond ratings. The Fund may also invest in unrated securities.

Corporate debt securities are fixed-income securities issued by businesses to finance their operations, although corporate debt instruments may
also include bank loans to companies. Notes, bonds, debentures and commercial paper are the most common types of corporate debt securities, with the primary difference being their maturities and secured or un-secured status. Commercial paper has the
shortest term and is usually unsecured.

The broad category of corporate debt securities includes debt issued by domestic or foreign
companies of all kinds, including those with small-, mid- and large-capitalizations. Corporate debt may be rated investment-grade or below investment-grade and may carry variable or floating rates of interest.

Because of the wide range of types, and maturities, of corporate debt securities, as well as the range of creditworthiness of its issuers,
corporate debt securities have widely varying potentials for return and risk profiles. For example, commercial paper issued by a large established domestic corporation that is rated investment-grade may have a modest return on principal, but carries
relatively limited risk. On the other hand, a long-term corporate note issued by a small foreign corporation from an emerging market country that has not been rated may have the potential for relatively large returns on principal, but carries a
relatively high degree of risk.

Corporate debt securities carry both credit risk and interest rate risk. Credit risk is the risk that
the Fund could lose money if the issuer of a corporate debt security is unable to pay interest or repay principal when it is due. Some corporate debt securities that are rated below investment-grade are generally considered speculative because they
present a greater risk of loss, including default, than higher quality debt securities. The credit risk of a particular issuers debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not

3

make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of higher-ranking senior securities may receive
amounts otherwise payable to the holders of more junior securities. Interest rate risk is the risk that the value of certain corporate debt securities will tend to fall when interest rates rise. In general, corporate debt securities with longer
terms tend to fall more in value when interest rates rise than corporate debt securities with shorter terms.

Depositary
Receipts

To the extent the Fund invests in stocks of foreign corporations, the Funds investment in such stocks may also
be in the form of depositary receipts or other securities convertible into securities of foreign issuers. Depositary receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted.
American Depositary Receipts (ADRs) are receipts typically issued by an American bank or trust company that evidence ownership of underlying securities issued by a foreign corporation. European Depositary Receipts (EDRs) are
receipts issued in Europe that evidence a similar ownership arrangement. Global Depositary Receipts (GDRs) are receipts issued throughout the world that evidence a similar arrangement. Generally, ADRs, in registered form, are designed
for use in the U.S. securities markets, and EDRs, in bearer form, are designed for use in European securities markets. GDRs are tradable both in the United States and in Europe and are designed for use throughout the world. Depositary receipts will
not necessarily be denominated in the same currency as their underlying securities.

Depositary receipts may be purchased through
sponsored or unsponsored facilities. A sponsored facility is established jointly by the issuer of the underlying security and a depositary, whereas a depositary may establish an unsponsored facility without participation by
the issuer of the depositary security. Holders of unsponsored depositary receipts generally bear all the costs of such facilities and the depositary of an unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass through voting rights to the holders of such receipts of the deposited securities.

Fund investments in depositary receipts, which include ADRs, GDRs and EDRs, are deemed to be investments in foreign securities for purposes of
the Funds investment strategy.

Equity Securities

Common Stocks. The Fund may invest in common stocks. Common stocks represent the residual ownership interest in the issuer and are
entitled to the income and increase in the value of the assets and business of the entity after all of its obligations and preferred stock are satisfied. Common stocks generally have voting rights. Common stocks fluctuate in price in response to
many factors including historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.

Convertible Securities. The Fund may invest in convertible securities that may be considered high yield securities. Convertible
securities include corporate bonds, notes and preferred stock that can be converted into or exchanged for a prescribed amount of common stock of the same or a different issue within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on debt or dividends paid on preferred stock until the convertible stock matures or is redeemed, converted or exchanged. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than the issuers common stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its
value as a fixed income security. The market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. While convertible securities generally offer lower interest or dividend
yields than nonconvertible debt securities of similar quality, they do enable the investor to benefit from increases in the market price of the underlying common stock. When investing in convertible securities, the Fund may invest in the lowest
credit rating category.

Preferred Stock. The Fund may invest in preferred stock. A preferred stock blends the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority over common stock in equity ownership, but does not have the seniority of a bond and its participation in the issuers growth may be limited. Preferred stock has
preference over common stock in the receipt of dividends and in any residual assets after payment to creditors if the issuer is dissolved. Although the dividend is set at a fixed annual rate, in some circumstances it can be changed or omitted by the
issuer. When investing in preferred stocks, the Fund may invest in the lowest credit rating category.

Warrants and Rights. The Fund
may purchase warrants and rights, which are instruments that permit the Fund to acquire, by subscription, the capital stock of a corporation at a set price, regardless of the market price for such stock. Warrants

4

may be either perpetual or of limited duration, but they usually do not have voting rights or pay dividends. The market price of warrants is usually significantly less than the current price of
the underlying stock. Thus, there is a greater risk that warrants might drop in value at a faster rate than the underlying stock.

Foreign Currencies

The Fund may invest directly and indirectly in foreign currencies. Investments in foreign currencies
are subject to numerous risks not least being the fluctuation of foreign currency exchange rates with respect to the U.S. Dollar. Exchange rates fluctuate for a number of reasons.

Inflation. Exchange rates change to reflect changes in a currencys buying power. Different countries experience different
inflation rates due to different monetary and fiscal policies, different product and labor market conditions, and a host of other factors.

Trade Deficits. Countries with trade deficits tend to experience a depreciating currency. Inflation may be the cause of a trade
deficit, making a countrys goods more expensive and less competitive and so reducing demand for its currency.

Interest
Rates. High interest rates may raise currency values in the short term by making such currencies more attractive to investors. However, since high interest rates are often the result of high inflation, long-term results may be the opposite.

Budget Deficits and Low Savings Rates. Countries that run large budget deficits and save little of their national income
tend to suffer a depreciating currency because they are forced to borrow abroad to finance their deficits. Payments of interest on this debt can inundate the currency markets with the currency of the debtor nation. Budget deficits also can
indirectly contribute to currency depreciation if a government chooses inflationary measure to cope with its deficits and debt.

Political Factors. Political instability in a country can cause a currency to depreciate. Demand for a certain currency may fall
if a country appears a less desirable place in which to invest and do business.

Government Control. Through their own buying
and selling of currencies, the worlds central banks sometimes manipulate exchange rate movements. In addition, governments occasionally issue statements to influence peoples expectations about the direction of exchange rates, or they may
instigate policies with an exchange rate target as the goal.

The value of the Funds investments is calculated in U.S. Dollars
each day that the New York Stock Exchange is open for business. As a result, to the extent that the Funds assets are invested in instruments denominated in foreign currencies and the currencies appreciate relative to the U.S. Dollar, the
Funds NAV per share as expressed in U.S. Dollars (and, therefore, the value of your investment) should increase. If the U.S. Dollar appreciates relative to the other currencies, the opposite should occur.

The currency-related gains and losses experienced by the Fund will be based on changes in the value of portfolio securities attributable to
currency fluctuations only in relation to the original purchase price of such securities as stated in U.S. Dollars. Gains or losses on shares of the Fund will be based on changes attributable to fluctuations in the NAV of such shares, expressed in
U.S. Dollars, in relation to the original U.S. Dollar purchase price of the shares. The amount of appreciation or depreciation in the Funds assets also will be affected by the net investment income generated by the money market
instruments in which the Fund invests and by changes in the value of the securities that are unrelated to changes in currency exchange rates.

The Fund may incur currency exchange costs when it sells instruments denominated in one currency and buy instruments denominated in another.

Currency Transactions. The Fund conducts currency exchange transactions on a spot basis. Currency transactions made on a
spot basis are for cash at the spot rate prevailing in the currency exchange market for buying or selling currency. The Fund also enters into forward currency contracts. See Options, Futures and Other Strategies below. A forward currency
contract is an obligation to buy or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are entered
into on the interbank market conducted directly between currency traders (usually large commercial banks) and their customers.

5

The Fund may invest in a combination of forward currency contracts and
U.S. Dollar-denominated market instruments in an attempt to obtain an investment result that is substantially the same as a direct investment in a foreign currency-denominated instrument. This investment technique creates a
synthetic position in the particular foreign-currency instrument whose performance the Adviser is trying to duplicate. For example, the combination of U.S. Dollar-denominated instruments with long forward currency
exchange contracts creates a position economically equivalent to a money market instrument denominated in the foreign currency itself. Such combined positions are sometimes necessary when the money market in a particular foreign currency is small or
relatively illiquid.

The Fund may invest in forward currency contracts to hedge either specific transactions (transaction hedging) or
portfolio positions (position hedging). Transaction hedging is the purchase or sale of forward currency contracts with respect to specific receivables or payables of the Fund in connection with the purchase and sale of portfolio securities. Position
hedging is the sale of a forward currency contract on a particular currency with respect to portfolio positions denominated or quoted in that currency.

The Fund may use forward currency contracts for position hedging if consistent with its policy of trying to expose its net assets to foreign
currencies. The Fund is not required to enter into forward currency contracts for hedging purposes and it is possible that the Fund may not be able to hedge against a currency devaluation that is so generally anticipated that the Fund is unable to
contract to sell the currency at a price above the devaluation level it anticipates. It also is possible, under certain circumstances, that the Fund may have to limit its currency transactions to qualify or to continue to qualify as a
regulated investment company under Subchapter M of Chapter 16 of Subtitle A of the Internal Revenue Code of 1986, as amended (Code)(RIC). See Dividends, Other Distributions and Taxes.

The Fund currently does not intend to enter into a forward currency contract with a term of more than one year, or to engage in position
hedging with respect to the currency of a particular country to more than the aggregate market value (at the time the hedging transaction is entered into) of its portfolio securities denominated in (or quoted in or currently convertible into or
directly related through the use of forward currency contracts in conjunction with money market instruments to) that particular currency.

At or before the maturity of a forward currency contract, the Fund may either sell a portfolio security and make delivery of the currency, or
retain the security and terminate its contractual obligation to deliver the currency by buying an offsetting contract obligating it to buy, on the same maturity date, the same amount of the currency. If the Fund engages in an offsetting
transaction, it may later enter into a new forward currency contract to sell the currency.

If the Fund engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been movement in forward currency contract prices. If forward prices go down during the period between the date the Fund enters into a forward currency contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent that the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to buy. If
forward prices go up, the Fund will suffer a loss to the extent the price of the currency it has agreed to buy exceeds the price of the currency it has agreed to sell.

Since the Fund invests in money market instruments denominated in foreign currencies, it may hold foreign currencies pending investment or
conversion into U.S. Dollars. Although the Fund values its assets daily in U.S. Dollars, it does not convert its holdings of foreign currencies into U.S. Dollars on a daily basis. The Fund will convert its holdings from time to time, however, and
incur the costs of currency conversion. Foreign exchange dealers do not charge a fee for conversion, but they do realize a profit based on the difference between the prices at which they buy and sell various currencies. Thus, a dealer may offer to
sell a foreign currency to the Fund at one rate, and offer to buy the currency at a lower rate if the Fund tries to resell the currency to the dealer.

Foreign Currency Options. The Fund may invest in foreign currency-denominated securities and may buy or sell put and call options
on foreign currencies. The Fund may buy or sell put and call options on foreign currencies either on exchanges or in the over-the-counter (OTC) market. A put option on a foreign currency gives the purchaser of the option the right to
sell a foreign currency at the exercise price until the option expires. A call option on a foreign currency gives the purchaser of the option the right to purchase the currency at the exercise price until the option expires. Currency options traded
on U.S. or other exchanges may be subject to position limits which may limit the ability of the Fund to reduce foreign currency risk using such options. OTC options differ from traded options in that

6

they are two-party contracts with price and other terms negotiated between buyer and seller, and generally do not have as much market liquidity as exchange-traded options.

Foreign Currency Exchange-Related Securities.

Foreign currency warrants. Foreign currency warrants such as Currency Exchange
WarrantsSM (CEWsSM) are warrants which entitle the holder to receive from their issuer an amount of cash (generally, for warrants
issued in the United States, in U.S. Dollars) which is calculated pursuant to a predetermined formula and based on the exchange rate between a specified foreign currency and the U.S. Dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of a specified date and time. Foreign currency warrants have been issued in connection with U.S. Dollar-denominated debt offerings by major corporate issuers in an
attempt to reduce the foreign currency exchange risk which, from the point of view of prospective purchasers of the securities, is inherent in the international fixed-income marketplace. Foreign currency warrants may attempt to reduce the foreign
exchange risk assumed by purchasers of a security by, for example, providing for a supplemental payment in the event that the U.S. Dollar depreciates against the value of a major foreign currency such as the Japanese yen or the Euro. The
formula used to determine the amount payable upon exercise of a foreign currency warrant may make the warrant worthless unless the applicable foreign currency exchange rate moves in a particular direction (e.g., unless the U.S. Dollar
appreciates or depreciates against the particular foreign currency to which the warrant is linked or indexed). Foreign currency warrants are severable from the debt obligations with which they may be offered, and may be listed on exchanges. Foreign
currency warrants may be exercisable only in certain minimum amounts, and an investor wishing to exercise warrants who possesses less than the minimum number required for exercise may be required either to sell the warrants or to purchase additional
warrants, thereby incurring additional transaction costs. In the case of any exercise of warrants, there may be a time delay between the time a holder of warrants gives instructions to exercise and the time the exchange rate relating to exercise is
determined, during which time the exchange rate could change significantly, thereby affecting both the market and cash settlement values of the warrants being exercised. The expiration date of the warrants may be accelerated if the warrants should
be delisted from an exchange or if their trading should be suspended permanently, which would result in the loss of any remaining time value of the warrants (i.e., the difference between the current market value and the exercise value of
the warrants), and, in the case the warrants were out-of-the-money, in a total loss of the purchase price of the warrants.

Warrants are generally unsecured obligations of their issuers and are not standardized foreign currency options issued by the Options Clearing
Corporation (OCC). Unlike foreign currency options issued by OCC, the terms of foreign exchange warrants generally will not be amended in the event of governmental or regulatory actions affecting exchange rates or in the event of the
imposition of other regulatory controls affecting the international currency markets. The initial public offering price of foreign currency warrants is generally considerably in excess of the price that a commercial user of foreign currencies might
pay in the interbank market for a comparable option involving significantly larger amounts of foreign currencies. Foreign currency warrants are subject to significant foreign exchange risk, including risks arising from complex political or economic
factors.

Principal exchange rate linked securities. Principal exchange rate linked securities (PERLsSM) are debt obligations the principal on which is payable at maturity in an amount that may vary based on the exchange rate between the U.S. Dollar and a particular foreign currency at or
about that time. The return on standard principal exchange rate linked securities is enhanced if the foreign currency to which the security is linked appreciates against the U.S. Dollar, and is adversely affected by increases in the
foreign exchange value of the U.S. Dollar; reverse principal exchange rate linked securities are like the standard securities, except that their return is enhanced by increases in the value of the U.S. Dollar and
adversely impacted by increases in the value of foreign currency. Interest payments on the securities are generally made in U.S. Dollars at rates that reflect the degree of foreign currency risk assumed or given up by the purchaser of the notes
(i.e., at relatively higher interest rates if the purchaser has assumed some of the foreign exchange risk, or relatively lower interest rates if the issuer has assumed some of the foreign exchange risk, based on the expectations of the current
market). Principal exchange rate linked securities may in limited cases be subject to acceleration of maturity (generally, not without the consent of the holders of the securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.

Performance indexed paper. Performance indexed paper (PIPsSM) is U.S. Dollar-denominated commercial paper the yield of which is linked to certain foreign exchange rate movements. The yield to the investor on performance indexed paper is established
at maturity as a function of spot exchange rates between the U.S. Dollar and a

7

designated currency as of or about that time (generally, the index maturity two days prior to maturity). The yield to the investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below, and a potential maximum rate of return that is above, market yields on U.S. Dollar-denominated commercial paper, with both the minimum and maximum rates of return on
the investment corresponding to the minimum and maximum values of the spot exchange rate two business days prior to maturity.

Foreign Securities

The Fund may have both direct and indirect exposure through investments in stock index futures
contracts, options on stock index futures contracts and options on securities and on stock indices to foreign securities. In most cases, the best available market for foreign securities will be on exchanges or in OTC markets located outside the
United States.

Investing in foreign securities carries political and economic risks distinct from those associated with investing in
the United States. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on or delays in the removal of funds or other
assets of a fund, political or financial instability or diplomatic and other developments that could affect such investments. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including
the possibility of expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or to convert currency into U.S. Dollars. There may be a greater possibility of default by
foreign governments or foreign-government sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic or social instability, military action or unrest or adverse diplomatic developments.

Developing and Emerging Markets. Emerging and developing markets abroad may offer special opportunities for investing but may
have greater risks than more developed foreign markets, such as those in Europe, Canada, Australia, New Zealand and Japan. There may be even less liquidity in their securities markets, and settlements of purchases and sales of securities may be
subject to additional delays. They are subject to greater risks of limitations on the repatriation of income and profits because of currency restrictions imposed by local governments. Those countries may also be subject to the risk of greater
political and economic instability, which can greatly affect the volatility of prices of securities in those countries.

Investing in
emerging market securities imposes risks different from, or greater than, risks of investing in foreign developed countries. These risks include: smaller market capitalization of securities markets, which may suffer periods of relative illiquidity;
significant price volatility; restrictions on foreign investment; possible repatriation of investment income and capital. In addition, foreign investors may be required to register the proceeds of sales; future economic or political crises could
lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies. The currencies of emerging market countries may experience significant declines against the U.S. Dollar.
Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries. Additional risks of emerging markets securities may include:
greater social, economic and political uncertainty and instability; more substantial governmental involvement in the economy; less governmental supervision and regulation; unavailability of currency hedging techniques; companies that are newly
organized and small; differences in auditing and financial reporting standards, which may result in unavailability of material information about issuers; and less developed legal systems. In addition, emerging securities markets may have different
clearance and settlement procedures, which may be unable to keep pace with the volume of securities transactions or otherwise make it difficult to engage in such transactions.

Hybrid Instruments

The Fund may invest in hybrid instruments. A hybrid instrument is a type of potentially high-risk derivative that combines a traditional stock,
bond, or commodity with an option or forward contract. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a hybrid is tied (positively or negatively) to the price of some commodity, currency or
securities index or another interest rate or some other economic factor (each a benchmark). The interest rate or (unlike most fixed income securities) the principal amount payable at maturity of a hybrid security may be increased or
decreased, depending on changes in the value of the benchmark. A hybrid could be, for example, a bond issued by an oil company that pays a small base level of interest, in addition to interest that accrues when oil prices exceed a certain
predetermined level. Such a hybrid instrument would be a combination of a bond and a call option on oil.

8

Hybrids can be used as an efficient means of pursuing a variety of investment goals,
including currency hedging, and increased total return. Hybrids may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply
and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the
redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. Dollar-denominated bond that has a fixed principal amount
and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the Fund to the credit risk of the issuer of the hybrids. These risks may cause significant fluctuations in the NAV of the Fund.

Certain issuers of structured products such as hybrid instruments may be deemed to be investment companies as defined in the 1940 Act. As a
result, the Funds investment in these products may be subject to limits applicable to investments in investment companies and may be subject to restrictions contained in the 1940 Act.

Illiquid Investments and Restricted Securities

The Fund may purchase and hold illiquid investments. No Fund will purchase or otherwise acquire any security if, as a result, more than 15% of
its net assets (taken at current value) would be invested in investments that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale. This policy does not include restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended (1933 Act), which the Board of Trustees (Board or Trustees) or Rafferty has determined under Board-approved guidelines are
liquid. No Fund, however, currently anticipates investing in such restricted securities.

The term illiquid investments for
this purpose means investments that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the investments. Investments currently considered to be illiquid include:
(1) repurchase agreements not terminable within seven days; (2) securities for which market quotations are not readily available; (3) OTC options and their underlying collateral; (4) bank deposits, unless they are payable at
principal amount plus accrued interest on demand or within seven days after demand; (5) restricted securities not determined to be liquid pursuant to guidelines established by the Board; and (6) in certain circumstances, securities
involved in swap, cap, floor or collar transactions. The assets used as cover for OTC options written by the Fund will be considered illiquid unless the OTC options are sold to qualified dealers who agree that the Fund may repurchase any OTC option
it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC option written subject to this procedure would be considered illiquid only to the extent that the maximum repurchase price under the
formula exceeds the intrinsic value of the option.

The Fund may not be able to sell illiquid investments when Rafferty considers it
desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were liquid. In addition, the sale of illiquid investments may require more time and result in higher dealer
discounts and other selling expenses than does the sale of investments that are not illiquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and investment in
illiquid investments may have an adverse impact on NAV.

Rule 144A establishes a safe harbor from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional buyers. Institutional markets for restricted securities that have developed as a result of Rule 144A provide both readily ascertainable values for certain restricted
securities and the ability to liquidate an investment to satisfy share redemption orders. An insufficient number of qualified institutional buyers interested in purchasing Rule 144A-eligible securities held by the Fund, however, could affect
adversely the marketability of such portfolio securities, and the Fund may be unable to dispose of such securities promptly or at reasonable prices.

Indexed Securities

The Fund may purchase indexed securities, which are securities, the value of which varies positively or negatively in relation to the value of
other securities, securities indices or other financial indicators, consistent with its investment objective. Indexed securities may be debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Recent issuers of indexed securities have included banks, corporations and certain U.S. government agencies.

9

The performance of indexed securities depends to a great extent on the performance of the
security or other instrument to which they are indexed and also may be influenced by interest rate changes in the United States and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuers creditworthiness deteriorates. Indexed securities may be more volatile than the underlying instruments. Certain indexed securities that are not traded on an established market
may be deemed illiquid. See Illiquid Investments and Restricted Securities above.

Total Return Swaps

The Fund may enter into total return swaps for hedging purposes and non-hedging purposes. Since swaps are entered into for
good faith hedging purposes or are offset by a segregated account maintained by an approved custodian, Rafferty believes that swaps do not constitute senior securities as defined in the 1940 Act and, accordingly, will not treat them as being subject
to the Funds borrowing restrictions. The net amount of the excess, if any, of the Funds obligations over its entitlement with respect to each total return swap will be accrued on a daily basis and an amount of cash or other liquid
securities having an aggregate NAV at least equal to such accrued excess will be maintained in a segregated account by the Funds custodian. The Fund will not enter into any total return swap unless Rafferty believes that the other party to the
transaction is creditworthy. If there is a default by the other party to such a transaction, the Fund will have contractual remedies pursuant to the agreement. The swap market has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing standardized swap documentation. In addition, some total return swaps are, and more in the future may be, centrally cleared. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments which are traded in the interbank market.

Options, Futures and Other Derivative Strategies

General. The Fund may use certain options (traded on an
exchange or OTC, or otherwise), futures contracts (sometimes referred to as futures) and options on futures contracts (collectively, Financial Instruments) as a substitute for a comparable market position in the underlying
security, to attempt to hedge or limit the exposure of the Funds position, to create a synthetic money market position, for certain tax-related purposes or to effect closing transactions.

The use of Financial Instruments is subject to applicable regulations of the SEC, the several exchanges upon which they are traded and the
Commodity Futures Trading Commission (the CFTC). In addition, the Funds ability to use Financial Instruments will be limited by tax considerations. See Dividends, Other Distributions and Taxes. Pursuant to a claim for
exemption filed with the National Futures Association, the Fund is not deemed to be a commodity pool operator or a commodity pool under the Commodity Exchange Act (the CEA). However, the registration exclusion was amended in February
2012, and such amendments took effect on April 24, 2012.

Under current CFTC regulations, if a fund uses commodity interests (such as
futures contracts, options on futures contracts and swaps) other than for bona fide hedging purposes (as defined by the CFTC) the aggregate initial margin and premiums required to establish these positions (after taking into account
unrealized profits and unrealized losses on any such positions and excluding the amount by which options that are in-the-money at the time of purchase) may not exceed 5% of a funds NAV, or alternatively, the aggregate net notional
value of those positions, as determined at the time the most recent position was established, may not exceed 100% of the funds NAV (after taking into account unrealized profits and unrealized losses on any such positions). Accordingly, the
Fund has registered as a commodity pool and the Adviser has registered as a commodity pool operator with the National Futures Association.

The Fund is subject to the risk that a change in U.S. law and related regulations will impact the way the Fund operates, increase the
particular costs of the Funds operation and/or change the competitive landscape. In this regard, any further amendment to the CEA or its related regulations that subject the Fund to additional regulation may have adverse impacts on the
Funds operations and expenses.

In addition to the instruments, strategies and risks described below and in the Prospectus, Rafferty
may discover additional opportunities in connection with Financial Instruments and other similar or related techniques. These new opportunities may become available as Rafferty develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new Financial Instruments or other techniques are developed. Rafferty may utilize these opportunities to the extent that they are consistent with the Funds investment objective and permitted by the Funds
investment limitations and applicable regulatory authorities. The Funds Prospectus or this SAI will

10

be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus.

Special Risks. The use of Financial Instruments involves special considerations and risks, certain of which are described below.
Risks pertaining to particular Financial Instruments are described in the sections that follow.

(1) Successful use of most Financial
Instruments depends upon Raffertys ability to predict movements of the overall securities markets, which requires different skills than predicting changes in the prices of individual securities. The ordinary spreads between prices in the cash
and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of stock market trends by Rafferty may still not result in a successful transaction.
Rafferty may be incorrect in its expectations as to the extent of market movements or the time span within which the movements take place, which, thus, may result in the strategy being unsuccessful.

(2) Options and futures prices can diverge from the prices of their underlying instruments. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect or no correlation
also may result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, and from imposition of daily price fluctuation limits or
trading halts.

(3) As described below, the Fund might be required to maintain assets as cover, maintain segregated
accounts or make margin payments when it takes positions in Financial Instruments involving obligations to third parties (e.g., Financial Instruments other than purchased options). If the Fund were unable to close out its positions in such
Financial Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. These requirements might impair the Funds ability to sell a portfolio security or make an
investment when it would otherwise be favorable to do so or require that the Fund sell a portfolio security at a disadvantageous time. The Funds ability to close out a position in a Financial Instrument prior to expiration or maturity depends
on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the other party to the transaction (the counterparty) to enter into a transaction closing out the position. Therefore,
there is no assurance that any position can be closed out at a time and price that is favorable to the Fund.

(4) Losses may arise
due to unanticipated market price movements, lack of a liquid secondary market for any particular instrument at a particular time or due to losses from premiums paid by the Fund on options transactions.

Cover. Transactions using Financial Instruments, other than purchased options, expose the Fund to an obligation to another party.
The Fund will not enter into any such transactions unless it owns either (1) an offsetting (covered) position in securities or other options or futures contracts or (2) cash and liquid assets with a value, marked-to-market
daily, sufficient to cover its potential obligations to the extent not covered as provided in (1) above. The Fund will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, set aside cash or
liquid assets in an account with its custodian, the Bank of New York Mellon (BNYM), in the prescribed amount as determined daily.

Assets used as cover or held in an account cannot be sold while the position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large portion of the Funds assets to cover or accounts could impede portfolio management or the Funds ability to meet redemption requests or other current
obligations.

Options. The value of an option position will reflect, among other things, the current market value of the
underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment and general market conditions. Options that expire unexercised have no value. Options currently are
traded on the Chicago Board Options Exchange® (CBOE®), the NYSE Arca, Inc. and other exchanges, as well as the OTC markets.

By buying a call option on a security, the Fund has the right, in return for the premium paid, to buy the security underlying the
option at the exercise price. By writing (selling) a call option and receiving a premium, the Fund becomes obligated during the term of the option to deliver securities underlying the option at the exercise price if the option is exercised. By
buying a put option, the Fund has the right, in return for the premium, to sell the security

11

underlying the option at the exercise price. By writing a put option, the Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise
price.

Because options premiums paid or received by the Fund are small in relation to the market value of the investments underlying the
options, buying and selling put and call options can be more speculative than investing directly in securities.

The Fund may effectively
terminate its right or obligation under an option by entering into a closing transaction. For example, the Fund may terminate its obligation under a call or put option that it had written by purchasing an identical call or put option; this is known
as a closing purchase transaction. Conversely, the Fund may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Closing transactions permit the Fund
to realize profits or limit losses on an option position prior to its exercise or expiration.

Risks of Options on Currencies and
Securities. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed that, in effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and its counterparty (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when the Fund purchases an OTC option, it relies on the counterparty from which it
purchased the option to make or take delivery of the underlying investment upon exercise of the option. Failure by the counterparty to do so would result in the loss of any premium paid by the Fund as well as the loss of any expected benefit of the
transaction.

The Funds ability to establish and close out positions in exchange-traded options depends on the existence of a liquid
market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the counterparty, or by a transaction in the secondary market if any
such market exists. There can be no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the counterparty, the Fund might be unable to close out an
OTC option position at any time prior to its expiration.

If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by the Fund could cause material losses because the Fund would be unable to sell the
investment used as cover for the written option until the option expires or is exercised.

Options on Indices. An index
fluctuates with changes in the market values of the securities included in the index. Options on indices give the holder the right to receive an amount of cash upon exercise of the option. Receipt of this cash amount will depend upon the closing
level of the index upon which the option is based being greater than (in the case of a call) or less than (in the case of put) the exercise price of the option. Some stock index options are based on a broad market index such as the S&P 500® Composite Stock Index, the NYSE Composite Index or the AMEX® Major Market Index or on a narrower index such as the Philadelphia Stock
Exchange Over-the-Counter Index.

Each of the Exchanges has established limitations governing the maximum number of call or put options
on the same index that may be bought or written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or
through one or more brokers). Under these limitations, option positions of all investment companies advised by Rafferty are combined for purposes of these limits. Pursuant to these limitations, an exchange may order the liquidation of positions and
may impose other sanctions or restrictions. These positions limits may restrict the number of listed options that the Fund may buy or sell.

Puts and calls on indices are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or
loss depends on changes in the index in question rather than on price movements in individual securities or futures contracts. When the Fund writes a call on an index, it receives a premium and agrees that, prior to the expiration date, the
purchaser of the call, upon exercise of the call, will receive from the Fund an amount of cash if the closing level of the index upon which the call is based is greater than the exercise price of the call. The amount of cash is equal to the
difference between the closing price of the index and the exercise price of the call times a specified multiple (multiplier), which determines the total value for each point of such difference. When the Fund buys a call on an index, it
pays a premium and has the same rights to such call as are indicated above. When the Fund buys a put on an index, it pays a premium and has the right, prior to the expiration date, to require the seller of the put, upon the Funds exercise of
the put, to deliver to the Fund an amount of cash if the closing level

12

of the index upon which the put is based is less than the exercise price of the put, which amount of cash is determined by the multiplier, as described above for calls. When the Fund writes a put
on an index, it receives a premium and the purchaser of the put has the right, prior to the expiration date, to require the Fund to deliver to it an amount of cash equal to the difference between the closing level of the index and the exercise price
times the multiplier if the closing level is less than the exercise price.

Risks of Options on Indices. If the Fund has
purchased an index option and exercises it before the closing index value for that day is available, it runs the risk that the level of the underlying index may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer.

OTC Options. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date,
contract size and strike price, the terms of OTC options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows the Fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded.

Forward Contracts. The Fund may enter into equity, equity index or interest rate forward contracts for purposes of attempting to
gain exposure to an index or group of securities without actually purchasing these securities, or to hedge a position. Forward contracts are two-party contracts pursuant to which one party agrees to pay the counterparty a fixed price for an agreed
upon amount of commodities, securities, or the cash value of the commodities, securities or the securities index, at an agreed upon date. Because they are two-party contracts and may have terms greater than seven days, forward contracts may be
considered to be illiquid for the Funds illiquid investment limitations. The Fund will not enter into any forward contract unless Rafferty believes that the other party to the transaction is creditworthy. The Fund bears the risk of loss of the
amount expected to be received under a forward contract in the event of the default or bankruptcy of a counterparty. If such a default occurs, the Fund will have contractual remedies pursuant to the forward contract, but such remedies may be subject
to bankruptcy and insolvency laws which could affect the Funds rights as a creditor.

Futures Contracts and Options on
Futures Contracts. A futures contract obligates the seller to deliver (and the purchaser to take delivery of) the specified security on the expiration date of the contract. An index futures contract obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery
of the underlying securities in the index is made.

When the Fund writes an option on a futures contract, it becomes obligated, in
return for the premium paid, to assume a position in the futures contract at a specified exercise price at any time during the term of the option. If the Fund writes a call, it assumes a short futures position. If it writes a put, it assumes a long
futures position. When the Fund purchases an option on a futures contract, it acquires the right in return for the premium it pays to assume a position in a futures contract (a long position if the option is a call and a short position if the option
is a put).

Whether the Fund realizes a gain or loss from futures activities depends upon movements in the underlying security or index.
The extent of the Funds loss from an unhedged short position in futures contracts or from writing unhedged call options on futures contracts is potentially unlimited. The Fund only purchases and sells futures contracts and options on futures
contracts that are traded on a U.S. exchange or board of trade.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit initial margin in an amount generally equal to 10% or less of the contract value. Margin also must be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Fund may be required by an exchange to increase the level of its initial margin payment, and
initial margin requirements might be increased generally in the future by regulatory action.

Subsequent variation margin
payments are made to and from the futures commission merchant daily as the value of the futures position varies, a process known as marking-to-market. Variation margin does not involve borrowing, but rather represents a daily settlement
of the Funds obligations to or from a futures commission merchant. When the Fund purchases an option on a futures contract, the premium paid plus transaction costs is all

13

that is at risk. In contrast, when the Fund purchases or sells a futures contract or writes a call or put option thereon, it is subject to daily variation margin calls that could be substantial
in the event of adverse price movements. If the Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous.

Purchasers and sellers of futures contracts and options on futures can enter into offsetting closing transactions, similar to closing
transactions in options, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures and options on futures contracts may be closed only on an exchange or board of trade that provides a
secondary market. However, there can be no assurance that a liquid secondary market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract or options position.

Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous days settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily
limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions.

If the Fund
were unable to liquidate a futures contract or an option on a futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk
with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain cash or liquid assets in an account.

Risks of Futures Contracts and Options Thereon. The ordinary spreads between prices in the cash and futures markets (including
the options on futures markets), due to differences in the natures of those markets, are subject to the following factors, which may create distortions. First, all participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationships between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may
cause temporary price distortions.

Risks Associated with Commodity Futures Contracts. There are several additional risks
associated with transactions in commodity futures contracts.

Storage. Unlike the financial futures markets, in
the commodity futures markets there are costs of physical storage associated with purchasing the underlying commodity. The price of the commodity futures contract will reflect the storage costs of purchasing the physical commodity, including the
time value of money invested in the physical commodity. To the extent that the storage costs for an underlying commodity change while the Fund is invested in futures contracts on that commodity, the value of the futures contract may change
proportionately.

Reinvestment. In the commodity futures markets, producers of the underlying commodity may decide to hedge
the price risk of selling the commodity by selling futures contracts today to lock in the price of the commodity at delivery tomorrow. In order to induce speculators to purchase the other side of the same futures contract, the commodity producer
generally must sell the futures contract at a lower price than the expected future spot price. Conversely, if most hedgers in the futures market are purchasing futures contracts to hedge against a rise in prices, then speculators will only sell the
other side of the futures contract at a higher futures price than the expected future spot price of the commodity. The changing nature of the hedgers and speculators in the commodity markets will influence whether futures prices are above or below
the expected future spot price, which can have significant implications for the Fund. If the nature of hedgers and speculators in futures markets has shifted when it is time for the Fund to reinvest the proceeds of a maturing contract in a new
futures contract, the Fund might reinvest at higher or lower futures prices, or choose to pursue other investments.

Other
Economic Factors. The commodities which underlie commodity futures contracts may be subject to additional economic and non-economic variables, such as drought, floods, weather, livestock disease, embargoes, tariffs, and international
economic, political and regulatory developments. These factors may have a larger impact

14

on commodity prices and commodity-linked instruments, including futures contracts, than on traditional securities. Certain commodities are also subject to limited pricing flexibility because of
supply and demand factors. Others are subject to broad price fluctuations as a result of the volatility of the prices for certain raw materials and the instability of supplies of other materials. These additional variables may create additional
investment risks which subject the Funds investments to greater volatility than investments in traditional securities.

Combined Positions. The Fund may purchase and write options in combination with each other. For example, the Fund may purchase a
put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing
a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result
in higher transaction costs and may be more difficult to open and close out.

Other Investment Companies

Open-end and Closed End Investment Company. The Fund may invest in the securities of other investment companies, including
open- and closed-end funds, and in exchange-traded funds. Investments in the securities of other investment companies may involve duplication of advisory fees and certain other expenses. By investing in another investment company, the Fund becomes a
shareholder of that investment company. As a result, Fund shareholders indirectly will bear the Funds proportionate share of the fees and expenses of the other investment company, in addition to the fees and expenses Fund shareholders bear in
connection with the Funds own operations.

The Fund intends to limit its investments in securities issued by other investment
companies in accordance with the 1940 Act. Section 12(d)(1) of the 1940 Act precludes the Fund from acquiring (i) more than 3% of the total outstanding shares of another investment company; (ii) shares of another investment company
having an aggregate value in excess of 5% of the value of the total assets of the Fund; or (iii) shares of another registered investment company and all other investment companies having an aggregate value in excess of 10% of the value of the
total assets of the Fund. However, Section 12(d)(1)(F) of the 1940 Act provides that the provisions of paragraph 12(d) shall not apply to securities purchased or otherwise acquired by the Fund if (i) immediately after such purchase or
acquisition not more than 3% of the total outstanding shares of such investment company is owned by the Fund and all affiliated persons of the Fund; and (ii) the Fund has not offered or sold, and is not proposing to offer or sell its shares
through a principal underwriter or otherwise at a public or offering price that includes a sales load of more than 1 1/2%.

If the Fund
invests in investment companies pursuant to Section 12(d)(1)(F), it must comply with the following voting restrictions: when the Fund exercises voting rights, by proxy or otherwise, with respect to investment companies owned by the Fund, the
Fund will either seek instruction from the Funds shareholders with regard to the voting of all proxies and vote in accordance with such instructions, or vote the shares held by the Fund in the same proportion as the vote of all other holders
of such security. In addition, an investment company purchased by the Fund pursuant to Section 12(d)(1)(F) shall not be required to redeem its shares in an amount exceeding 1% of such investment companys total outstanding shares in any
period of less than thirty days.

Shares of another investment company or ETF that has received exemptive relief from the SEC to permit
other funds to invest in the shares without these limitations are excluded from such restrictions to the extent that the Fund has complied with the requirements of such orders. To the extent that the Fund invests in open-end or closed-end investment
companies that invest primarily in the securities of companies located outside the United States, see the risks related to foreign securities set forth above.

Exchange-Traded Products. The Fund may invest in ETFs, which are registered investment companies, partnerships or trusts that
are bought and sold on a securities exchange. The Fund may also invest in exchange-traded notes (ETN), which are structured debt securities. Additionally, the Fund may invest in swap agreements referencing ETFs. Whereas ETFs
liabilities are secured by their portfolio securities, ETNs liabilities are unsecured general obligations of the issuer. Most ETFs and ETNs are designed to track a particular market segment or index. ETFs and ETNs share expenses associated
with their operation, typically including, with respect to ETFs, advisory fees. When the Fund invests in an ETF or ETN, in addition to directly bearing expenses associated with its own operations, it will bear its pro rata portion of the ETFs
or ETNs expenses. The risks of owning an ETF or ETN generally reflect

15

the risks of owning the underlying securities the ETF or ETN is designed to track, although lack of liquidity in an ETF or ETN could result in it being more volatile than the underlying portfolio
of securities. If the Fund invests in ETFs or swap agreements referencing ETFs, the underlying ETFs may not necessarily track the same index as the Fund. In addition, because of ETF or ETN expenses, compared to owning the underlying securities
directly, it may be more costly to own an ETF or ETN. The value of an ETN security should also be expected to fluctuate with the credit rating of the issuer.

Payment-In-Kind Securities and Strips

The Fund may invest in payment-in-kind securities and strips of any rating or maturity. Payment-in-kind securities allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in bonds. Both zero-coupon securities and payment-in-kind securities allow an issuer to avoid the need to generate cash to meet current interest payments. Even though such
securities do not pay current interest in cash, the Fund nonetheless is required to accrue interest income on these investments and to distribute the interest income at least annually to shareholders. Thus, the Fund could be required at times to
liquidate other investments to satisfy distribution requirements.

The Fund may also invest in strips, which are debt securities whose
interest coupons are taken out and traded separately after the securities are issued but otherwise are comparable to zero-coupon securities. Like zero-coupon securities and payment-in-kind securities, strips are generally more sensitive to interest
rate fluctuations than interest paying securities of comparable term and quality.

Repurchase Agreements

The Fund may enter into repurchase agreements with banks that are members of the Federal Reserve System or securities dealers who are
members of a national securities exchange or are primary dealers in U.S. government securities. Repurchase agreements generally are for a short period of time, usually less than a week. Under a repurchase agreement, the Fund purchases a U.S.
government security and simultaneously agrees to sell the security back to the seller at a mutually agreed-upon future price and date, normally one day or a few days later. The resale price is greater than the purchase price, reflecting an
agreed-upon market interest rate during the Funds holding period. While the maturities of the underlying securities in repurchase agreement transactions may be more than one year, the term of each repurchase agreement always will be less than
one year. Repurchase agreements with a maturity of more than seven days are considered to be illiquid investments. The Fund may not enter into such a repurchase agreement if, as a result, more than 15% of the value of its net assets would then be
invested in such repurchase agreements and other illiquid investments. See Illiquid Investments and Restricted Securities above.

The Fund will always receive, as collateral, securities whose market value, including accrued interest, at all times will be at least equal to
100% of the dollar amount invested by the Fund in each repurchase agreement. In the event of default or bankruptcy by the seller, the Fund will liquidate those securities (whose market value, including accrued interest, must be at least 100% of the
amount invested by the Fund) held under the applicable repurchase agreement, which securities constitute collateral for the sellers obligation to repurchase the security. If the seller defaults, the Fund might incur a loss if the value of the
collateral securing the repurchase agreement declines and might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy or similar proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Fund may be delayed or limited.

Reverse Repurchase Agreements

The Fund may borrow by entering into reverse repurchase agreements with the same parties with whom it may enter into repurchase agreements.
Under a reverse repurchase agreement, the Fund sells securities and agrees to repurchase them at a mutually agreed to price. At the time the Fund enters into a reverse repurchase agreement, it will establish and maintain a segregated account with an
approved custodian containing liquid high-grade securities, marked-to-market daily, having a value not less than the repurchase price (including accrued interest). Reverse repurchase agreements involve the risk that the market value of securities
retained in lieu of sale by the Fund may decline below the price of the securities the Fund has sold but is obliged to repurchase. If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer
or its trustee or receiver may receive an extension of time to determine whether to enforce the Funds obligation to repurchase the securities. During that time, the Funds use of the proceeds of the reverse repurchase agreement
effectively may be restricted. Reverse repurchase agreements create leverage, a speculative factor, and are considered borrowings for the purpose of the Funds limitation on borrowing.

16

Short Sales

The Fund may engage in short sale transactions under which the Fund sells a security it does not own. To complete such a transaction, the Fund
must borrow the security to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. The price at such time may be more or less than the price
at which the security was sold by the Fund. Until the security is replaced, the Fund is required to pay to the lender amounts equal to any dividends that accrue during the period of the loan. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet the margin requirements, until the short position is closed out.

Until the Fund closes its short
position or replaces the borrowed stock, the Fund will: (1) maintain an account containing cash or liquid assets at such a level that (a) the amount deposited in the account plus the amount deposited with the broker as collateral will
equal the current value of the stock sold short and (b) the amount deposited in the account plus the amount deposited with the broker as collateral will not be less than the market value of the stock at the time the stock was sold short; or
(2) otherwise cover the Funds short position.

Swap Agreements

The Fund may enter into swap agreements. Swap agreements are generally two-party contracts entered into primarily by institutional
investors for periods ranging from a day to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or swapped between the parties are calculated with respect to a notional amount, i.e., the return on or increase invalue of a particular dollar amount invested in
a basket of securities representing a particular index. Some swaps are, and more in the future will be, centrally cleared. Swaps that are centrally-cleared are subject to the creditworthiness of the clearing organizations involved in the
transaction. For example, an investor could lose margin payments it has deposited with the clearing organization as well as the net amount of gains not yet paid by the clearing organization if it breaches its agreement with the investor or becomes
insolvent or goes into bankruptcy. In the event of bankruptcy of the clearing organization, the investor may be entitled to the net amount of gains the investor is entitled to receive plus the return of margin owed to it only in proportion to the
amount received by the clearing organizations other customers, potentially resulting in losses to the investor.

Most swap
agreements entered into by the Fund calculate the obligations of the parties to the agreement on a net basis. Consequently, the Funds current obligations (or rights) under a swap agreement generally will be equal to the net amount
to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the net amount). Payments may be made at the conclusion of a swap agreement or periodically during its term.

Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, if a swap is entered into on a net
basis, if the other party to a swap agreement defaults, the Funds risk of loss consists of the net amount of payments that such Fund is contractually entitled to receive, if any.

The net amount of the excess, if any, of the Funds obligations over its entitlements with respect to a swap agreement entered into on a
net basis will be accrued daily and an amount of cash or liquid asset having an aggregate NAV at least equal to the accrued excess will be maintained in an account with the Custodian that satisfies the 1940 Act. The Fund also will establish and
maintain such accounts with respect to its total obligations under any swaps that are not entered into on a net basis. Obligations under swap agreements so covered will not be construed to be senior securities for purposes of the
Funds investment restriction concerning senior securities.

Because they are generally two-party contracts and may have terms of
greater than seven days, swap agreements may be considered to be illiquid for the Funds illiquid investment limitations. The Fund will not enter into any swap agreement unless Rafferty believes that the other party to the transaction is
creditworthy. The Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty.

The Fund may enter into a swap agreement with respect to an index in circumstances where Rafferty believes that it may be more cost effective
or practical than buying the underlying securities represented by such index or a futures contract or an option on such index. The counterparty to any swap agreement will typically be a bank, investment banking firm or broker-dealer. The
counterparty will generally agree to pay the Fund the amount, if any, by which

17

the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks represented in the index, plus the dividends that would have been received on
those stocks. The Fund will agree to pay to the counterparty a floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such
stocks. Therefore, the return to the Fund on any swap agreement should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Fund on the notional amount.

The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. In addition, as discussed above, some swaps currently are, and more in the future will be, centrally cleared, which affects how swaps are transacted. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments that are traded in the OTC market. Rafferty, under the supervision of the Board, is responsible for determining and monitoring the liquidity of Fund transactions in swap
agreements.

The use of equity swaps is a highly specialized activity that involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions.

U.S. Government Securities

The Fund may invest in securities issued or guaranteed by the U.S. government or its agencies or instrumentalities (U.S. government
securities) in pursuit of its investment objective, in order to deposit such securities as initial or variation margin, as cover for the investment techniques it employs, as part of a cash reserve or for liquidity purposes.

U.S. government securities are high-quality instruments issued or guaranteed as to principal or interest by the U.S. Treasury or by an
agency or instrumentality of the U.S. government. Not all U.S. government securities are backed by the full faith and credit of the United States. Some are backed by the right of the issuer to borrow from the U.S. Treasury; others are backed by
discretionary authority of the U.S. government to purchase the agencies obligations; while others are supported only by the credit of the instrumentality. In the case of securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing the obligation for ultimate repayment.

U.S. government securities
include U.S. Treasury Bills (which mature within one year of the date they are issued), U.S. Treasury Notes (which have maturities of one to ten years) and U.S. Treasury Bonds (which generally have maturities of more than 10 years). All such U.S.
Treasury securities are backed by the full faith and credit of the United States.

U.S. government agencies and instrumentalities that
issue or guarantee securities include the Federal Housing Administration, the Federal National Mortgage Association (Fannie Mae®), the Farmers Home Administration, the
Export-Import Bank of the United States, the Small Business Administration, the Government National Mortgage Association (Ginnie Mae®), the General Services Administration, the
Central Bank for Cooperatives, the Federal Home Loan Banks the Federal Home Loan Mortgage Corporation (Freddie Mac®), the Farm Credit Banks, the Maritime Administration, the
Tennessee Valley Authority, the Resolution Funding Corporation and the Student Loan Marketing Association (Sallie Mae®).

In September 2008, the U.S. Treasury and the Federal Housing Finance Agency (FHFA) announced that Fannie Mae® and Freddie Mac® had been placed in conservatorship. Since that time, Fannie Mae®
and Freddie Mac® have received significant capital support through U.S. Treasury preferred stock purchases, as well as Treasury and Federal Reserve purchases of their mortgage backed
securities (MBS). The FHFA and the U.S. Treasury (through its agreement to purchase Freddie Mac® and Fannie Mae® preferred
stock) have imposed strict limits on the size of their mortgage portfolios. While the mortgage-backed securities purchase programs ended in 2010, the U.S. Treasury continued its support for the entities capital as necessary to prevent a
negative net worth through at least 2012. Since the end of 2007, Fannie Mae® and Freddie Mac® have received U.S. Treasury support of
approximately $187.5 billion through draws under the preferred stock purchase agreements. However, they have repaid approximately $185 billion in dividends and Fannie Mae® and Freddie Mac® have not required a draw from the U.S. Treasury since the fourth quarter of 2011, or the first quarter of 2012 respectively. Fannie Mae®
and Freddie Mac® ended the third quarter of 2013 with positive net worth and, as a result, neither required a draw from the U.S. Treasury. Nonetheless, no assurance can be given that the
Federal Reserve or the U.S. Treasury will ensure that Fannie Mae® and Freddie Mac® remain successful in meeting their obligations with
respect to the debt and mortgage-backed securities that they issue.

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In addition, the problems faced by Fannie
Mae® and Freddie Mac®, resulting in their being placed into federal conservatorship and receiving significant U.S. government support,
have sparked serious debate among federal policy makers regarding the continued role of the U.S. government in providing liquidity for mortgage loans. The Obama Administration produced a report to Congress on February 11, 2011, outlining a
proposal to wind down Fannie Mae® and Freddie Mac® by increasing their guarantee fees, reducing their conforming loan limits (the
maximum amount of each loan they are authorized to purchase), and continuing progressive limits on the size of their investment portfolio. In December 2011, Congress enacted the Temporary Payroll Tax Cut Continuation Act (TCCA) of 2011
which, among other provisions, requires that Fannie Mae® and Freddie Mac® increase their single-family guaranty fees by at least 10
basis points and remit this increase to Treasury with respect to all loans acquired by Fannie Mae® or Freddie Mac® on or after
April 1, 2012 and before January 1, 2022. Serious discussions among policymakers continue, however, as to whether Freddie Mac® and Fannie Mae® should be nationalized, privatized, restructured, or eliminated altogether. Fannie Mae® and Freddie Mac® also are the subject of several continuing legal actions and investigations over certain accounting, disclosure or corporate governance matters, which (along with any resulting financial
restatements) may continue to have an adverse effect on the guaranteeing entities. Importantly, the future of Freddie Mac® and Fannie
Mae® is in serious question as the U.S. government considers multiple options.

Yields on short-, intermediate- and long-term U.S. government securities are dependent on a variety of factors, including the general
conditions of the money and bond markets, the size of a particular offering and the maturity of the obligation. Debt securities with longer maturities tend to produce higher capital appreciation and depreciation than obligations with shorter
maturities and lower yields. The market value of U.S. government securities generally varies inversely with changes in the market interest rates. An increase in interest rates, therefore, generally would reduce the market value of the Funds
portfolio investments in U.S. government securities, while a decline in interest rates generally would increase the market value of the Funds portfolio investments in these securities.

U.S. Government Sponsored Enterprises (GSEs)

GSE securities are securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. Some obligations issued by GSEs
and instrumentalities are supported by the full faith and credit of the U.S. Treasury; others by the right of the issuer to borrow from the U.S. Treasury; others by discretionary authority of the U.S. government to purchase certain obligations of
the agency or instrumentality; and others only by the credit of the agency or instrumentality. Those securities bear fixed, floating or variable rates of interest. Interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. government currently provides financial support to such GSEs or instrumentalities, no assurance can be given that it will always do so, since it is not so obligated by law.

Certain U.S. government debt securities, such as securities of the Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the U.S. Treasury. Others, such as securities issued by the Fannie Mae® and Freddie Mac®, are supported only by the credit of the
corporation. In the case of securities not backed by the full faith and credit of the United States, a fund must look principally to the agency issuing or guaranteeing the obligation in the event the agency or instrumentality does not meet its
commitments. The U.S. government may choose not to provide financial support to GSEs or instrumentalities if it is not legally obligated to do so. The Fund will invest in securities of such instrumentalities only when Rafferty is satisfied that the
credit risk with respect to any such instrumentality is comparatively minimal.

When-Issued Securities

The Fund may enter into firm commitment agreements for the purchase of securities on a specified future date. The Fund may purchase, for
example, new issues of fixed-income instruments on a when-issued basis, whereby the payment obligation, or yield to maturity, or coupon rate on the instruments may not be fixed at the time of transaction. The Fund will not purchase securities on a
when-issued basis if, as a result, more than 15% of its net assets would be so invested. If the Fund enters into a firm commitment agreement, liability for the purchase price and the rights and risks of ownership of the security accrue to the Fund
at the time it becomes obligated to purchase such security, although delivery and payment occur at a later date. Accordingly, if the market price of the security should decline, the effect of such an agreement would be to obligate the Fund to
purchase the security at a price above the current market price on the date of delivery and payment. During the time the Fund is obligated to

19

purchase such a security, it will be required to segregate assets with an approved custodian in an amount sufficient to settle the transaction.

Other Investment Risks and Practices

Borrowing. The Fund may borrow money for investment purposes, which is a form of leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique that increases investment risk while increasing investment opportunity. Leverage will magnify changes in the Funds NAV and on the Funds investments. Although the
principal of such borrowings will be fixed, the Funds assets may change in value during the time the borrowing is outstanding. Leverage also creates interest expenses for the Fund. To the extent the income derived from securities purchased
with borrowed funds exceeds the interest the Fund will have to pay, that Funds net income will be greater than it would be if leverage were not used. Conversely, if the income from the assets obtained with borrowed funds is not sufficient to
cover the cost of leveraging, the net income of the Fund will be less than it would be if leverage were not used, and therefore the amount available for distribution to shareholders as dividends will be reduced. The use of derivatives in connection
with leverage creates the potential for significant loss.

The Fund may borrow money to facilitate management of the Funds portfolio
by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments would be inconvenient or disadvantageous. Such borrowing is not for investment purposes and will be repaid by the borrowing Fund promptly.

As required by the 1940 Act, the Fund must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds,
less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If at any time the value of the required asset coverage declines as a result of market fluctuations or other reasons, the Fund may be required to sell some of its portfolio
investments within three days to reduce the amount of its borrowings and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell portfolio instruments at that time.

Lending Portfolio Securities. The Fund may lend portfolio securities with a value not exceeding 33 1/3% of its total assets to
brokers, dealers, and financial institutions. Borrowers are required continuously to secure their obligations to return securities on loan from the Fund by depositing any combination of short-term government securities, shares of registered and
unregistered money market funds and cash as collateral with the Fund. The collateral must be equal to at least 100% of the market value of the loaned securities, which will be marked to market daily. The value of this collateral could decline,
causing the Fund to experience a loss. While the Funds portfolio securities are on loan, the Fund continues to receive interest on the securities loaned and simultaneously earns either interest on the investment of the collateral or fee income
if the loan is otherwise collateralized. The Fund may invest the interest received and the collateral, thereby earning additional income. Loans would be subject to termination by the lending Fund on a four-business days notice or by the
borrower on a one-day notice. Borrowed securities must be returned when the loan is terminated. Any gain or loss in the market price of the borrowed securities that occurs during the term of the loan inures to the lending Fund and the Funds
shareholders. A lending Fund may pay reasonable finders, borrowers, administrative and custodial fees in connection with a loan. The Fund could lose money from securities lending if, for example, it is delayed or prevented from selling the
collateral after a loan is made, in recovering the securities loaned or if the Fund incurs losses on the reinvestment of cash collateral. The Fund currently has no intention of lending its portfolio securities.

Portfolio Turnover. The Trust anticipates that the Funds annual portfolio turnover will vary. The Funds portfolio
turnover rate is calculated by the value of the securities purchased or securities sold, excluding all securities whose maturities at the time of acquisition were one year or less, divided by the average monthly value of such securities owned during
the year. Based on this calculation, instruments with remaining maturities of less than one year are excluded from the portfolio turnover rate. Such instruments generally would include futures contracts and options, since such contracts generally
have a remaining maturity of less than one year. In any given period, all of the Funds investments may have a remaining maturity of less than one year; in that case, the portfolio turnover rate for that period would be equal to zero. However,
the Funds portfolio turnover rate calculated with all securities whose maturities were one year or less is anticipated to be unusually high.

High portfolio turnover involves correspondingly greater expenses to the Fund, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestments in other securities. Such sales also may result in adverse tax consequences to the Funds shareholders resulting from its distributions of increased

20

net capital gains, if any, recognized as a result of the sales. The trading costs and tax effects associated with portfolio turnover may adversely affect the Funds performance.

Correlation and Tracking Risk

Several factors may affect the Funds ability to track the performance of its applicable index. Among these factors are: (1) Fund
expenses, including brokerage expenses and commissions (which may be increased by high portfolio turnover); (2) less than all of the securities in the underlying index being held by the Fund and securities not included in the underlying index
being held by the Fund; (3) an imperfect correlation between the performance of instruments held by the Fund, such as futures contracts and options, and the performance of the underlying securities in the cash market comprising an index;
(4) bid-ask spreads; (5) the Fund holding instruments that are illiquid or the market for which becomes disrupted; and (6) the need to conform the Funds portfolio holdings to comply with the Funds investment restrictions
or policies, or regulatory or tax law requirements.

While index futures and options contracts closely correlate with the applicable
indices over long periods, shorter-term deviation, such as on a daily basis, does occur with these instruments. As a result, the Funds short-term performance will reflect such deviation from its underlying index.

INVESTMENT RESTRICTIONS

The Trust, on behalf of the Fund, has adopted the following investment policies which are fundamental policies that may not be changed without
the affirmative vote of a majority of the outstanding voting securities of the Fund, as defined by the 1940 Act. As defined by the 1940 Act, a vote of a majority of the outstanding voting securities of the Fund means the affirmative vote
of the lesser of (1) more than 50% of the outstanding shares of the Fund or (2) 67% or more of the shares present at a meeting, if more than 50% of the outstanding shares are represented at the meeting in person or by proxy.

The Funds investment objective is a non-fundamental policy of the Fund. Non-fundamental policies may be changed by the Board without
shareholder approval.

For purposes of the following limitations, all percentage limitations apply immediately after a purchase or initial
investment. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of the investment, a later increase or decrease in the percentage resulting from any change in value or net assets will not result in a
violation of such restrictions. If at any time the Funds borrowings exceed its limitations due to a decline in net assets, such borrowings will be reduced promptly to the extent necessary to comply with the limitation.

The Fund may not:

1.

Borrow money, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.

2.

Issue senior securities, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.

3.

Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.

4.

Except for any Fund that is concentrated in an industry or group of industries within the meaning of the 1940 Act, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, 25% or more of the Funds total assets would be invested in the securities of companies
whose principal business activities are in the same industry. However, the Fund that tracks an underlying index will only concentrate its investment in a particular industry or group of industries to approximately the same extent as its underlying
index is so concentrated.

5.

Purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may (a) invest in securities or other
instruments directly secured by real estate, and (b) invest in securities or other instruments issued by issuers that invest in real estate.

21

6.

Purchase or sell commodities or commodity contracts unless acquired as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not prevent the Fund from purchasing, selling and entering into financial futures contracts (including futures contracts on indices of securities, interest rates and
currencies), and options on financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), warrants, swaps, forward contracts, foreign currency spot and forward contracts and other financial
instruments.

7.

Underwrite securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the 1933 Act in
the disposition of restricted securities or other investment company securities.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the general supervision by the Trustees, Rafferty is responsible for decisions to buy and sell securities for the Fund, the
selection of broker-dealers to effect the transactions, and the negotiation of brokerage commissions, if any. Rafferty expects that the Fund may execute brokerage or other agency transactions through registered broker-dealers, for a commission, in
conformity with the 1940 Act, the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

When
selecting a broker or dealer to execute portfolio transactions, Rafferty considers many factors, including the rate of commission or the size of the broker-dealers spread, the size and difficulty of the order, the nature of the
market for the security, operational capabilities of the broker-dealer and the research, statistical and economic data furnished by the broker-dealer to Rafferty.

In effecting portfolio transactions for the Fund, Rafferty seeks to receive the closing prices of securities that are in line with those of the
securities included in the applicable underlying index and seeks to execute trades of such securities at the lowest commission rate reasonably available. With respect to agency transactions, Rafferty may execute trades at a higher rate of commission
if reasonable in relation to brokerage and research services provided to the Fund or Rafferty. Such services may include the following: information as to the availability of securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or evaluations of portfolio securities. The Fund believes that the requirement always to seek the lowest possible commission cost could impede effective portfolio management and
preclude the Fund and Rafferty from obtaining a high quality of brokerage and research services. In seeking to determine the reasonableness of brokerage commissions paid in any transaction, Rafferty relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in evaluating the brokerage and research services received from the broker effecting the transaction.

Rafferty may use research and services provided to it by brokers in servicing all Funds; however, not all such services may be used by Rafferty
in connection with the Fund. While the receipt of such information and services is useful in varying degrees and generally would reduce the amount of research or services otherwise performed by Rafferty, this information and these services are of
indeterminable value and would not reduce Raffertys investment advisory fee to be paid by the Fund.

Purchases and sales of U.S.
government securities normally are transacted through issuers, underwriters or major dealers in U.S. government securities acting as principals. Such transactions are made on a net basis and do not involve payment of brokerage commissions. The cost
of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriters; transactions with dealers normally reflect the spread between bid and asked prices.

Aggregate brokerage commissions paid by the Fund for the fiscal periods ended October 31 are set forth in the table below.

Direxion S&P 500® Volatility Response Shares

Brokerage Fees Paid

Year Ended October 31, 2013

$2,708

January 9, 2012 - October 31, 2012

$5,555

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PORTFOLIO HOLDINGS INFORMATION

Disclosure of the Funds complete holdings is required to be made quarterly within 60 days of the end of each fiscal quarter in the Annual
Report and Semi-Annual Report to Fund shareholders and in the quarterly holdings report on Form N-Q. These reports are available, free of charge, on the EDGAR database on the SECs website at www.sec.gov. In addition, the Funds portfolio
holdings will be made available on the Funds website at www.direxionfunds.com each day the Fund is open for business.

The portfolio
composition file (PCF) and the IIV, which contain portfolio holdings information, is made available daily, including to the Funds service providers to facilitate the provision of services to the Fund and to certain other entities
as necessary for transactions in Creation Units. Such entities may be limited to National Securities Clearing Corporation (NSCC) members, subscribers to various fee-based services, investors that have entered into an authorized
participant agreement with the Distributor and the transfer agent or purchase Creation Units through a dealer that has entered into such an agreement (Authorized Participants), and other institutional market participants that provide
information services. Each business day, Fund portfolio holdings information will be provided to the Distributor or other agent for dissemination through the facilities of the NSCC and/or through other fee-based services to NSCC members and/or
subscribers to the fee-based services, including Authorized Participants, and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading shares of the Fund in the
secondary market.

Daily access to the PCF file and IIV is permitted to: (i) certain personnel of service providers that are involved
in portfolio management and providing administrative, operational, or other support to portfolio management; (ii) Authorized Participants through NSCC, and (iii) other personnel of the Adviser and the Funds distributor,
administrator, custodian and fund accountant who are involved in functions which may require such information to conduct business in the ordinary course.

From time to time, rating and ranking organizations such as Standard &
Poors® and Morningstar®, Inc. may request complete portfolio holdings information in connection with rating the Fund. To prevent
such parties from potentially misusing the complete portfolio holdings information, the Fund will generally only disclose such information no earlier than one business day following the date of the information. Portfolio holdings information made
available in connection with the creation/redemption process may be provided to other entities that provide additional services to the Fund in the ordinary course of business after it has been disseminated to the NSCC.

In addition, the Funds President may grant exceptions to permit additional disclosure of the complete portfolio holdings information at
differing times and with differing lag times to rating agencies and to the parties noted above, provided that (1) the Fund has a legitimate business purpose for doing so; (2) it is in the best interests of shareholders; (3) the
recipient is subject to a confidentiality agreement; and (4) the recipient is subject to a duty not to trade on the nonpublic information. The Chief Compliance Officer shall report any disclosures made pursuant to this exception to the Board.

MANAGEMENT OF THE TRUST

The Board of Trustees

The Trust is governed by its Board of Trustees (the Board). The Board is responsible for and oversees the overall management and
operations of the Trust and the Fund, which includes the general oversight and review of the Funds investment activities, in accordance with federal law and the law of the State of Delaware, as well as the stated policies of the Fund. The
Board oversees the Trusts officers and service providers, including Rafferty, which is responsible for the management of the day-to-day operations of the Fund based on policies and agreements reviewed and approved by the Board. In carrying out
these responsibilities, the Board regularly interacts with and receives reports from senior personnel of service providers, including personnel from Rafferty and U.S. Bancorp Fund Services, LLC (USBFS). The Board also is assisted by the
Trusts independent auditor (who reports directly to the Trusts Audit Committee), independent counsel and other professionals as appropriate.

Risk Oversight

Consistent with its responsibility for oversight of the Trust and the Fund, the Board oversees the management of risks relating to the
administration and operation of the Trust and the Fund. Rafferty, as part of its responsibilities for the day-to-day operations of the Fund, is responsible for day-to-day risk management for the Fund. The Board, in the exercise of its reasonable
business judgment performs its risk management oversight directly and, as to certain

23

matters, through its committees (described below) and through the Independent Trustees. The following provides an overview of the principal, but not all, aspects of the Boards oversight of
risk management for the Trust and the Fund.

The Board has adopted, and periodically reviews, policies and procedures designed to address
risks to the Trust and the Fund. In addition, under the general oversight of the Board, Rafferty and other service providers to the Fund have themselves adopted a variety of policies, procedures and controls designed to address particular risks to
the Fund. Different processes, procedures and controls are employed with respect to different types of risks.

The Board also oversees risk
management for the Trust and the Fund through review of regular reports, presentations and other information from officers of the Trust and other persons. The Trusts Chief Compliance Officer (CCO) and senior officers of Rafferty
regularly report to the Board on a range of matters, including those relating to risk management. The Board also regularly receives reports from Rafferty and USBFS with respect to the Funds investments. In addition to regular reports from
these parties, the Board also receives reports regarding other service providers to the Trust, either directly or through Rafferty, USBFS or the CCO, on a periodic or regular basis. At least annually, the Board receives a report from the CCO
regarding the effectiveness of the Funds compliance program. Also, on an annual basis, the Board receives reports, presentations and other information from Rafferty in connection with the Boards consideration of the renewal of each of
the Trusts agreements with Rafferty and the Trusts distribution plan under Rule 12b-1 under the 1940 Act.

The CCO reports
regularly to the Board on Fund valuation matters. The Audit Committee receives regular reports from the Trusts independent registered public accounting firm on internal control and financial reporting matters. On at least a quarterly basis,
the Independent Trustees meet with the CCO to discuss matters relating to the Funds compliance program.

Board
Structure and Related Matters

Board members who are not interested persons of the Fund as defined in
Section 2(a)(19) of the 1940 Act (Independent Trustees) constitute two-thirds of the Board. The Trustees discharge their responsibilities collectively as a Board, as well as through Board committees, each of which operates pursuant
to a charter approved by the Board that delineates the specific responsibilities of that committee. The Board has established three standing committees: the Audit Committee, the Nominating Committee and the Qualified Legal Compliance Committee. For
example, the Audit Committee is responsible for specific matters related to oversight of the Funds independent auditors, subject to approval of the Audit Committees recommendations by the Board. The members and responsibilities of each
Board committee are summarized below.

The Board periodically evaluates its structure and composition as well as various aspects of its
operations. The Chairman of the Board is not an Independent Trustee and the Board has chosen not to have a lead Independent Trustee. However, the Board believes that its leadership structure, including its Independent Trustees and Board committees,
is appropriate for the Trust in light of, among other factors, the asset size and nature of the Fund, the number of Funds overseen by the Board, the arrangements for the conduct of the Funds operations, the number of Trustees, and the
Boards responsibilities. On an annual basis, the Board conducts a self-evaluation that considers, among other matters, whether the Board and its committees are functioning effectively and whether, given the size and composition of the Board
and each of its committees, the Trustees are able to oversee effectively the number of Funds in the complex.

The Trust is part of the
Direxion Family of Investment Companies, which is comprised of the [ ] portfolios within the Trust, [ ] portfolios within the Direxion Funds and [ ] portfolios within Direxion
Insurance Trust. The Independent Trustees constitute two-thirds of the Board of the Trust.

The Board holds four regularly scheduled
in-person meetings each year. The Board may hold special meetings, as needed, either in person or by telephone, to address matters arising between regular meetings. During a portion of each in-person meeting, the Independent Trustees meet outside of
managements presence. The Independent Trustees may hold special meetings, as needed, either in person or by telephone.

The Trustees
of the Trust are identified in the tables below, which provide information regarding their age, business address and principal occupation during the past five years including any affiliation with Rafferty, the length of service to the Trust, and the
position, if any, that they hold on the board of directors of companies other than the Trust as of December 31, 2013. Each of the Independent Trustees of the Trust also serve on the Board of the Direxion Funds and Direxion Insurance Trust, the
other registered investment companies in the Direxion mutual

24

fund complex. Unless otherwise noted, an individuals business address is 1301 Avenue of the Americas (6th Avenue), 35th Floor, New York, New York 10019.

Mr. ONeill is affiliated with Rafferty. Mr. ONeill is the Managing Director of Rafferty and owns a beneficial interest in
Rafferty.

(2)

The Direxion Family of Investment Companies consists of the Direxion Funds which, as of the date of this SAI, offers for sale to the public
[ ] portfolios, the Direxion Insurance Trust which, as of the date of this SAI, offers for sale [ ] of the [ ] funds registered with the SEC and the Direxion Shares ETF Trust
which, as of the date of this SAI, offers for sale to the public [ ] of the [ ] funds registered with the SEC.

In addition to the information set forth in the tables above and other relevant qualifications, experience, attributes or skills applicable to
a particular Trustee, the following provides further information about the qualifications and experience of each Trustee.

Daniel D.
ONeill: Mr. ONeill has extensive experience in the investment management business, including as managing director of Rafferty.

Gerald E. Shanley III: Mr. Shanley has audit experience and spent ten years in the tax practice of an international public accounting
firm. He is a certified public accountant and has a JD degree. He has extensive business experience as the president of a closely held manufacturing company, a director of several closely held companies, a business and tax consultant and a trustee
of a private investment trust. He has served on the boards of several charitable and not for profit organizations. He also has multiple years of service as a Trustee.

John Weisser: Mr. Weisser has extensive experience in the investment management business, including as managing director of an investment
bank and a director of other registered investment companies. He also has multiple years of service as a Trustee.

Board
Committees

The Trust has an Audit Committee, consisting of Messrs. Weisser and Shanley. The members of the Audit Committee are
Independent Trustees. The primary responsibilities of the Trusts Audit Committee are, as set forth in its charter, to make recommendations to the Board Members as to: the engagement or discharge of the Trusts independent registered
public accounting firm (including the audit fees charged by the auditors); the supervision of investigations into matters relating to audit matters; the review with the independent registered public accounting firm of the results of audits; and
addressing any other matters regarding audits. The Audit Committee met four times during the Funds most recent fiscal year.

26

The Trust also has a Nominating Committee, consisting of Messrs. Weisser and Shanley, each of
whom is an Independent Trustee. The primary responsibilities of the nominating committee are to make recommendations to the Board on issues related to the composition and operation of the Board, and communicate with management on those issues. The
Nominating Committee also evaluates and nominates Board member candidates. The Nominating Committee will consider nominees recommended by shareholders. Such recommendations should be in writing and addressed to the Fund with attention to the
Nominating Committee Chair. The recommendations must include the following Preliminary Information regarding the nominee: (1) name; (2) date of birth; (3) education; (4) business professional or other relevant experience and
areas of expertise; (5) current business and home addresses and contact information; (6) other board positions or prior experience; and (7) any knowledge and experience relating to investment companies and investment company
governance. The Nominating Committee did not meet during the Trusts most recent fiscal year.

The Trust has a Qualified Legal
Compliance Committee, consisting of Messrs. Weisser and Shanley. The members of the Qualified Legal Compliance Committee are Independent Trustees of the Trust. The primary responsibility of the Trusts Qualified Legal Compliance Committee is to
receive, review and take appropriate action with respect to any report (Report) made or referred to the Committee by an attorney of evidence of a material violation of applicable U.S. federal or state securities law, material breach of a
fiduciary duty under U.S. federal or state law or a similar material violation by the Trust or by any officer, director, employee or agent of the Trust. The Qualified Legal Compliance Committee did not meet during the Trusts most recent fiscal
year.

Principal Officers of the Trust

The officers of the Trust conduct and supervise its daily business. Unless otherwise noted, an individuals business address is 1301
Avenue of the Americas (6th Avenue), 35th Floor, New York, New York 10019. As of the date of this SAI, the officers of the Trust, their ages, their business address and their principal occupations during the past five years are as follows:

Each officer of the Trust holds office until his or her successor is elected and qualified or until his or her earlier death, inability to serve,
removal or resignation.

(2)

The Direxion Family of Investment Companies consists of the Direxion Funds which, as of the date of this SAI, offers for sale to the public
[ ] portfolios, the Direxion Insurance Trust which, as of the date of this SAI, offers for sale [ ] of the [ ] funds registered with the SEC and the Direxion Shares ETF Trust
which, as of the date of this SAI, offers for sale to the public [ ] of the [ ] funds registered with the SEC.

The following table shows the amount of equity securities owned in the Fund and the Direxion Family of Investment Companies by the Trustees as
of the calendar year ended December 31, 2013:

Dollar Range of

Equity
Securities

Owned:

Interested Trustee:

Non-Interested
Trustees:

Daniel D.

ONeill

Gerald E. Shanley

III

John Weisser

Direxion S&P 500® Volatility Response Shares

$0

$0

$0

Aggregate Dollar Range of Equity Securities in the
Direxion Family of Investment Companies(1)

More than

$100,000

$0

$1 - $10,000

(1)

The Direxion Family of Investment Companies consists of the Direxion Funds which, as of the date of this SAI, offers for sale to the public
[ ] portfolios, the Direxion Insurance Trust which, as of the date of this SAI, offers for sale [ ] of the [ ] funds registered with the SEC and the Direxion Shares ETF Trust
which, as of the date of this SAI, offers for sale to the public [ ] of the [ ] funds registered with the SEC.

The Trusts Trust Instrument provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise be subject by reason of

29

willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office.

No officer, director or employee of Rafferty receives any compensation from the Fund for acting as a Trustee or officer of the Trust. The
following table shows the compensation earned by each Trustee for the Trusts fiscal year ended October 31, 2013:

Costs associated with Trustee compensation are allocated across the operational Funds based on the net assets of each Fund in the Trust.

(2)

For the fiscal year ended October 31, 2013 trustees fees and expenses in the amount of $225,000 were incurred by the Trust.

(3)

Effective June 24, 2013, Mr. Byrne resigned as a Trustee of the Trust.

Principal Shareholders, Control Persons and Management Ownership

A principal shareholder is any person who owns of record or beneficially 5% or more of the outstanding shares of the Fund. A control person is
a shareholder that owns beneficially or through controlled companies more than 25% of the voting securities of a company or acknowledges the existence of control. Shareholders owning voting securities in excess of 25% may determine the outcome of
any matter affecting and voted on by shareholders of the Fund.

As of [ ], 2014, the following shareholders were
considered to be either a principal shareholder or control person of the Fund:

Direxion S&P 500® Volatility Response Shares

Name and Address

Parent Company

Jurisdiction

% Ownership

Deutsche Bank Securities, Inc./Cedar

5022 Gate Parkway, Suite 100

Jacksonville, FL 32256

Deutsche BankSecurities Inc.

DE

[ ]%

In addition, as of
[
], 2014, the Trustees and officers as a group owned less than 1% of the outstanding shares of the Fund.

Investment
Adviser

Rafferty Asset Management, LLC, 1301 Avenue of the Americas (6th Avenue), 35th Floor, New York, New York 10019,
provides investment advice to the Fund. Rafferty was organized as a New York limited liability company in June 1997. Lawrence C. Rafferty controls Rafferty through his ownership in Rafferty Holdings, LLC.

30

Under an Investment Advisory Agreement (Advisory Agreement) between the Trust, on
behalf of the Fund, and Rafferty dated August 13, 2008, Rafferty provides a continuous investment program for the Funds assets in accordance with its investment objectives, policies and limitations, and oversees the day-to-day operations
of the Fund, subject to the supervision of the Trustees. Rafferty bears all costs associated with providing these advisory services and the expenses of the Trustees who are affiliated with or interested persons of Rafferty. The Trust bears all other
expenses that are not assumed by Rafferty as described in the Prospectus. The Trust also is liable for nonrecurring expenses as may arise, including litigation to which the Fund may be a party. The Trust also may have an obligation to indemnify its
Trustees and officers with respect to any such litigation.

The Advisory Agreement was initially approved by the Trustees (including all
Independent Trustees) and Rafferty, as sole shareholder of the Fund in compliance with the 1940 Act. The Advisory Agreement with respect to the Fund will continue in force for an initial period of two years after the date of its approval.
Thereafter, the Advisory Agreement will be renewable from year to year with respect to the Fund, so long as its continuance is approved at least annually (1) by the vote, cast in person at a meeting called for that purpose, of a majority of
those Trustees who are Independent Trustees of the Trust; and (2) by the majority vote of either the full Board or the vote of a majority of the outstanding shares of the Fund. The Advisory Agreement automatically terminates on assignment and
is terminable on a 60-day written notice either by the Trust or Rafferty.

Pursuant to the Advisory Agreement, the Fund pays Rafferty 0.45%
at an annual rate based on its average daily net assets.

Additionally, Rafferty has contractually agreed to waive 0.10% of its management
fees through September 1, 2015, which is not subject to reimbursement by the Fund. There is no guarantee that the management fee waiver will continue after September 1, 2015. This contractual waiver may be terminated at any time by the
Board.

The table below shows the amount of advisory fees incurred by the Fund and the amount of fees waived and/or reimbursed by Rafferty
for the fiscal periods ended October 31.

Direxion S&P 500® Volatility Response Shares

Advisory Fees Incurred

Waived fees and/or expenses reimbursed by
Adviser

Year Ended October 31, 2013

$ 21,133

$ (62,285)

January 9, 2012 - October 31, 2012

$ 14,365

$ (143,060)

The Fund is responsible for its own operating expenses. Rafferty has entered into an Operating Expense
Limitation Agreement with the Fund. Under this Operating Expense Limitation Agreement, Rafferty has contractually agreed to cap all or a portion of its management fee and/or reimburse the Funds operating expenses (excluding, as applicable,
among other expenses, taxes, leverage interest, dividends or interest on short positions, other interest expenses, brokerage commissions, expenses incurred in connection with any merger or reorganization and extraordinary expenses such as
litigation) through September 1, 2015, to the extent that they 0.45% of the daily net assets of the Fund. Any expense cap is subject to reimbursement by the Fund only within the following three years only if overall expenses fall below these
percentage limitations. This agreement may be terminated at any time at the discretion of the Board upon notice to the Adviser and without the approval of Fund shareholders. The agreement may be terminated by the Adviser only with the consent of the
Board.

Rafferty shall not be liable to the Trust or any shareholder for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, negligence or reckless disregard of the duties imposed upon it by its agreement with the Trust or for any losses that may be sustained in the purchase, holding or sale of any security.

Pursuant to Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Trust and Rafferty have adopted Codes of Ethics. These codes
permit portfolio managers and other access persons of the Fund to invest in securities that may be owned by the Fund, subject to certain restrictions.

Portfolio Managers

Paul Brigandi, the Funds Portfolio Manager, is primarily responsible for the day-to-day management of the Fund. An investment trading
team of Rafferty employees assists Mr. Brigandi in the day-to-day management of the Fund subject to his primary responsibility and oversight. The Portfolio Manager works with the investment trading team to decide the target allocation of the
Funds investments and on a day-to-day basis, an individual portfolio trader executes transactions for the Fund consistent with its target allocation. The members of the investment trading

31

team rotate among the various series of the Trust, including the Fund periodically so that no single individual is assigned to a specific Fund for extended periods of time.

In addition to the Fund, each member of the investment team manages the following other accounts as of October 31, 2013:

Accounts

Total Number of Accounts

Total Assets

Total Number of Accounts withPerformance Based Fees

Total Assets of Accounts withPerformanceBased Fees

Registered Investment Companies

60

$7 billion

0

$0

Other Pooled Investment Vehicles

0

$0

0

$0

Other Accounts

0

$0

0

$0

Rafferty manages no other accounts with investment objectives similar to that of the Fund. However, two or
more funds advised by Rafferty may invest in the same securities but the nature of each investment (long or short) may be opposite and in different proportions. Rafferty ordinarily executes transactions for the Fund market-on-close, in
which funds purchasing or selling the same security receive the same closing price.

Rafferty has not identified any additional material
conflicts between the Fund and other accounts managed by the investment team. However, the portfolio managers management of other accounts may give rise to potential conflicts of interest in connection with their management of the
Funds investments, on the one hand, and the investments of other accounts, on the other. The other accounts may have the same investment objective as the Fund. Therefore, a potential conflict of interest may arise as a result of the identical
investment objectives, whereby the portfolio managers could favor one account over and devote unequal time and attention to the Fund and other accounts. Another potential conflict could include the portfolio managers knowledge about size,
timing and possible market impact of Fund trades, whereby a portfolio manager could use this information to the advantage of other accounts and to the disadvantage of the Fund. This could create potential conflicts of interest resulting in the Fund
paying higher fees or one investment vehicle out performing another. The Adviser has established policies and procedures to ensure that the purchase and sale of securities among all accounts it manages are fairly and equitably allocated.

The investment teams compensation is paid by Rafferty. Their compensation primarily consists of a fixed base salary and a bonus. The
investment teams salary is reviewed annually and increases are determined by factors such as performance and seniority. Bonuses are determined by the individual performance of an employee including factors such as attention to detail, process,
and efficiency, and are impacted by the overall performance of the firm. The investment teams salary and bonus are not based on the Funds performance and as a result, no benchmarks are used. Along with all other employees of Rafferty,
the investment team may participate in the firms 401(k) retirement plan where Rafferty may make matching contributions up to a defined percentage of their salary.

The members of the investment team did not own shares of the Fund as of October 31, 2013.

Proxy Voting Policies and Procedures

The Board has adopted proxy voting policies and procedures (Proxy Policies) wherein the Trust has delegated to Rafferty the
responsibility for voting proxies relating to portfolio securities held by the Fund as part of their investment advisory services, subject to the supervision and oversight of the Board. The Proxy Voting Policies of Rafferty are attached as Appendix
B. Notwithstanding this delegation of responsibilities, however, the Fund retains the right to vote proxies relating to its portfolio securities. The fundamental purpose of the Proxy Policies is to ensure that each vote will be in a manner that
reflects the best interest of the Fund and its shareholders, taking into account the value of the Funds investments.

32

More Information. The actual voting records relating to portfolio securities for
future 12-month periods ending June 30 will be available without charge, upon request by calling toll-free, 1-866-476-7523 or by accessing the SECs website at www.sec.gov.

U.S. Bancorp Fund Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the Funds administrator. The Bank of New
York Mellon, One Wall Street, New York, New York 10286, serves as the Funds transfer agent, and custodian. Rafferty also performs certain administrative services for the Fund.

Pursuant to a Fund Administration and Servicing Agreement between the Trust and USBFS, USBFS provides the Trust with administrative and
management services (other than investment advisory services). As compensation for these services, the Trust pays USBFS a fee based on the Trusts total average daily net assets. USBFS also is entitled to certain out-of-pocket expenses. The
amount of fees paid by the Trust to USBFS pursuant to the Fund Administration Servicing Agreement for the fiscal periods indicated is set forth in the table below.

Fees paid to the Administrator

Year Ended October 31, 2013

$1,761,094

September 1, 2012  October 31, 2012

$296,637

Pursuant to an Accounting Agreement between the Trust and BNYM, BNYM provides the Trust with accounting
services, including portfolio accounting services, tax accounting services and furnishing financial reports. As compensation for these accounting services, the Trust pays BNYM a fee based on the Trusts total average daily net assets of 0.03%
and a minimum annual complex fee of approximately $160,000. BNYM also is entitled to certain out-of-pocket expenses for the services mentioned above, including pricing expenses. The amount of fees paid by the Trust to BNYM pursuant to the Accounting
Agreement for the fiscal periods indicated is set forth in the table below.

Fees paid to the Fund Accounting Agent

Year Ended October 31, 2013

$2,467,605

September 1, 2012  October 31, 2012

$238,347

Prior to September 1, 2012, pursuant to a prior agreement between the Trust and BNYM, BYNM provided
administration and management services (other than investment advisory services) in addition to the accounting services it currently provides. The amount of fees paid by the Trust to BNYM pursuant to the prior agreement for the fiscal periods
indicated is set forth in the table below.

Fees paid to the Administrator and Fund Accounting Agent

November 1, 2011  August 31, 2012

$3,210,261

Year Ended October 31, 2011

$4,393,751

Pursuant to a Custodian Agreement, BNYM serves as the custodian of the Funds assets. The custodian
holds and administers the assets in the Funds portfolios. Pursuant to the Custodian Agreement, the custodian receives an annual fee based on the Trusts total average daily net assets of 0.0075% and certain settlement charges. The
custodian also is entitled to certain out-of-pocket expenses.

The amount of fees paid by the Trust pursuant to the agreement for the
fiscal period ended October 31 is set forth in the table below.

Fees paid to the Custodian

Year Ended October 31, 2013

$9,109,779

Year Ended October 31, 2012

$1,030,960

Year Ended October 31, 2011

$1,037,907

33

Distributor

Foreside Fund Services, LLC, located at 3 Canal Plaza, Suite 100, Portland, Maine 04101, serves as the distributor (Distributor) in
connection with the continuous offering of the Funds shares. The Distributor is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 and a member of the Financial Industry Regulatory Authority. The Trust offers
Shares of the Fund for sale through the Distributor in Creation Units, as described below. The Distributor will not sell or redeem Shares in quantities less than Creation Units. The Distributor will deliver a Prospectus to persons purchasing
Creation Units and will maintain records of Creation Unit orders placed and confirmations furnished by it. Pursuant to a written agreement, the Adviser pays the Distributor for distribution-related services. For the fiscal year ended
October
31, 2013, the Distributor received $506,606 as compensation from Rafferty for distribution services for the Trust.

Distribution
Plan

Rule 12b-1 under the 1940 Act, as amended, (the Rule) provides that an investment company may bear expenses
of distributing its shares only pursuant to a plan adopted in accordance with the Rule. The Trustees have adopted a Rule 12b-1 Distribution Plan (Rule 12b-1 Plan) pursuant to which the Fund
may pay certain expenses incurred in the distribution of its shares and the servicing and maintenance of existing shareholder accounts. The Distributor, as the Funds principal underwriter, and Rafferty may have a direct or indirect financial
interest in the Rule 12b-1 Plan or any related agreement. Pursuant to the Rule 12b-1 Plan, the Fund may pay a fee of up to 0.25% of the Funds average daily net assets. No Rule 12b-1 fee is currently being charged to the Fund.

The Rule 12b-1Plan was approved by the Board, including a majority of the Independent Trustees of the Fund. In approving the Rule 12b-1 Plan,
the Trustees determined that there is a reasonable likelihood that the Rule 12b-1 Plan will benefit the Fund and its shareholders. The Trustees will review quarterly and annually a written report provided by the Treasurer of the amounts expended
under the Plans and the purpose for which such expenditures were made.

The Rule 12b-1Plan permits payments to be made by the Fund to the
Distributor or other third parties for expenditures incurred in connection with the distribution of Fund shares to investors and the provision of certain shareholder services. The distributor or other third parties are authorized to engage in
advertising, the preparation and distribution of sales literature and other promotional activities on behalf of the Fund. In addition, the Rule 12b-1Plan authorizes payments by the Fund to the Distributor or other third parties for the cost related
to selling or servicing efforts, preparing, printing and distributing Fund prospectuses, statements of additional information, and shareholder reports to investors.

Independent Registered Public Accounting Firm

Ernst & Young LLP (E&Y), 5 Times Square New York, New York, 10036 is the independent registered public accounting firm
for the Trust. The Financial Statements of the Fund for the fiscal year ended October 31, 2013 have been audited by E&Y and are incorporated by reference herein, which is given upon their authority as experts in accounting and auditing.

A funds share price is known as its NAV. The Fund calculates its NAV as of the close of regular trading on the NYSE, usually 4:00 p.m.
Eastern Time, each day the NYSE is open for business (Business Day.) The NYSE is open for business Monday through Friday, except in observation of the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents
Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving Day and Christmas Day. The NYSE may close early on the business day before each of these holidays and on the day after Thanksgiving Day. NYSE holiday schedules are subject to
change without notice.

If the exchange or market on which the Funds investments are primarily traded closes early, the NAV may be
calculated prior to its normal calculation time. Creation/redemption transaction order time cutoffs would also be accelerated. The value of the Funds assets that trade in markets outside the United States or in currencies other than the
U.S. Dollar may fluctuate when foreign markets are open but the Fund is not open for business.

34

A security listed or traded on an exchange, domestic or foreign, is valued at its last sales
price on the principal exchange on which it is traded prior to the time when assets are valued. If no sale is reported at that time, the mean of the last bid and asked prices is used. Securities primarily traded on the NASDAQ Global Market® (NASDAQ®) for which market quotations are readily available shall be valued using the NASDAQ® Official Closing Price (NOCP) provided by NASDAQ® each business day. The NOCP is the most recently reported price as of
4:00:02 p.m. Eastern time, unless that price is outside the range of the inside bid and asked prices in that case, NASDAQ® will adjust the price to equal the inside bid or
asked price, whichever is closer. If the NOCP is not available, such securities shall be valued at the last sale price on the day of valuation, or if there has been no sale on such day, at the mean between the bid and asked prices.

When market quotations for options and futures positions held by the Fund are readily available, those positions will be valued based upon such
quotations. Securities and other assets for which market quotations are not readily available, or for which Rafferty has reason to question the validity of quotations received, are valued at fair value by procedures as adopted by the Board.

For purposes of determining NAV per share of the Fund, options and futures contracts are valued at the last sales prices of the exchanges on
which they trade. The value of a futures contract equals the unrealized gain or loss on the contract that is determined by marking the contract to the last sale price for a like contract acquired on the day on which the futures contract is being
valued. The value of options on futures contracts is determined based upon the last sale price for a like option acquired on the day on which the option is being valued. A last sale price may not be used for the foregoing purposes if the market
makes a limited move with respect to a particular instrument.

For valuation purposes, quotations of foreign securities or other
assets denominated in foreign currencies are translated to U.S. Dollar equivalents using the net foreign exchange rate in effect at the close of the stock exchange in the country where the security is issued. Short-term debt instruments having
a maturity of 60 days or less are valued at amortized cost, which approximates market value. If the Board determines that the amortized cost method does not represent the fair value of the short-term debt instrument, the investment will be valued at
fair value as determined by procedures as adopted by the Board. U.S. government securities are valued at the mean between the closing bid and asked price provided by an independent third party pricing service (Pricing Service).

OTC securities held by the Fund will be valued at the last sales price or, if no sales price is reported, the mean of the last bid and asked
price is used. The portfolio securities of the Fund that are listed on national exchanges are valued at the last sales price of such securities; if no sales price is reported, the mean of the last bid and asked price is used. Dividend income and
other distributions are recorded on the ex-distribution date.

Swaps are valued based upon prices from third party vendor models or
quotations from market makers to the extent available.

Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets not valued in accordance with the foregoing principles will be valued at their respective fair value as determined in good faith by, or under procedures established by, the Trustees, which
procedures may include the delegation of certain responsibilities regarding valuation to Rafferty or the officers of the Trust. The officers of the Trust report, as necessary, to the Trustees regarding portfolio valuation determinations. The
Trustees, from time to time, will review these methods of valuation and will recommend changes that may be necessary to assure that the investments of the Fund are valued at fair value.

ADDITIONAL INFORMATION CONCERNING SHARES

Organization and Description of Shares of Beneficial Interest

The Trust is a Delaware statutory trust and registered investment company. The Trust was organized on April 23, 2008, and has authorized
capital of unlimited Shares of beneficial interest of no par value which may be issued in more than one class or series. Currently, the Trust consists of multiple separately managed series. The Board may designate additional series of beneficial
interest and classify Shares of a particular series into one or more classes of that series.

All Shares of the Trust are freely
transferable. The Shares do not have preemptive rights or cumulative voting rights, and none of the Shares have any preference to conversion, exchange, dividends, retirements, liquidation, redemption, or any other feature. Shares have equal voting
rights, except that, in a matter affecting a particular series or class of Shares, only Shares of that series of class may be entitled to vote on the matter. Trust shareholders are

35

entitled to require the Trust to redeem Creation Units of their Shares. The Trust Instrument confers upon the Broad of Trustees the power, by resolution, to alter the number of Shares
constituting a Creation Unit or to specify that Shares of the Trust may be individually redeemable. The Trust reserves the right to adjust the stock prices of Shares of the Trust to maintain convenient trading ranges for investors. Any such
adjustments would be accomplished through stock splits or reverse stock splits which would have no effect on the net assets of the applicable Fund.

Under Delaware law, the Trust is not required to hold an annual shareholders meeting if the 1940 Act does not require such a meeting.
Generally, there will not be annual meetings of Trust shareholders. Trust shareholders may remove Trustees from office by votes cast at a meeting of Trust shareholders or by written consent. If requested by shareholders of at least 10% of the
outstanding Shares of the Trust, the Trust will call a meeting of Funds shareholders for the purpose of voting upon the question of removal of a Trustee of the Trust and will assist in communications with other Trust shareholders.

The Trust Instrument disclaims liability of the shareholders of the officers of the Trust for acts or obligations of the Trust which are
binding only on the assets and property of the Trust. The Trust Instrument provides for indemnification from the Trusts property for all loss and expense of any Fund shareholder held personally liable for the obligations of the Trust. The risk
of a Trust shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would not be able to meet the Trusts obligations and this risk, thus, should be considered remote.

If the Fund does not grow to a size to permit it to be economically viable, the Fund may cease operations. In such an event, investors may be
required to liquidate or transfer their investments at an inopportune time.

Book Entry Only System

The Depository Trust Company (DTC) acts as securities depositary for the Shares. Shares of the Fund are represented by global
securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except as provided below, certificates will not be issued for Shares.

DTC has advised the Trust as follows: it is a limited-purpose trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities of its participants (DTC Participants) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the
DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange, Inc., the AMEX and the Financial Industry Regulatory Authority. Access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (Indirect Participants). DTC agrees with and represents
to DTC Participants that it will administer its book-entry system in accordance with its rules and by-laws and requirements of law. Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests
through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as Beneficial owners) is shown on, and the transfer of ownership is effected only
through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial owners that are not DTC Participants). Beneficial owners will receive from or through
the DTC Participant a written confirmation relating to their purchase of Shares. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the
ability of certain investors to acquire beneficial interests in Shares.

Beneficial owners of Shares are not entitled to have Shares
registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and are not considered the registered holder thereof. Accordingly, each Beneficial owner must rely on the procedures of DTC,
the DTC Participant and any Indirect Participant through which such Beneficial owner holds its interests, to exercise any rights of a holder of Shares. The Trust understands that under existing industry practice, in the event the Trust requests any
action of holders of Shares, or a Beneficial owner desires to take any action that DTC, as the record owner of all outstanding Shares, is entitled to take, DTC would authorize the DTC Participants to take such action and that the DTC Participants
would

36

authorize the Indirect Participants and Beneficial owners acting through such DTC Participants to take such action and would otherwise act upon the instructions of Beneficial owners owning
through them. As described above, the Trust recognizes DTC or its nominee as the owner of all Shares for all purposes. Conveyance of all notices, statements and other communications to Beneficial owners is effected as follows. Pursuant to the
Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of Share holdings of each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial owners holding Shares, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form,
number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial owners. In addition, the Trust
shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.

Distributions of Shares shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee,
upon receipt of any such distributions, shall credit immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in Shares as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in
bearer form or registered in a street name, and will be the responsibility of such DTC Participants. The Trust has no responsibility or liability for any aspects of the records relating to or notices to Beneficial owners, or payments
made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial owners owning through such DTC Participants.

DTC may determine to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and
discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange. The Trust will not make the DTC book-entry Dividend Reinvestment
Service available for use by Beneficial Owners for reinvestment of their cash proceeds but certain brokers may make a dividend reinvestment service available to their clients. Brokers offering such services may require investors to adhere to
specific procedures and timetables in order to participate. Investors interested in such a service should contact their broker for availability and other necessary details.

PURCHASES AND REDEMPTIONS

The Trust issues and redeems Shares of the Fund only in aggregations of Creation Units. The number of Shares of the Fund that constitute a
Creation Unit for the Fund and the value of such Creation Unit will be 50,000 and $2,000,000, respectively.

See Purchase and
Issuance of Shares in Creation Units and Redemption of Creation Units below. The Board reserves the right to declare a split or a consolidation in the number of Shares outstanding of any Fund, and may make a corresponding change in
the number of Shares constituting a Creation Unit, in the event that the per Shares price in the secondary market rises (or declines) to an amount that falls outside the range deemed desirable by the Board for any other reason.

Purchase and Issuance of Creation Units

The Trust issues and sells Shares only in Creation Units on a continuous basis through the Distributor, without a sales load, at their net
asset value next determined after receipt, on any Business Day (as defined above), of an order in proper form.

Creation Units of Shares
may be purchased only by or through an Authorized Participant. Such Authorized Participant will agree pursuant to the terms of such Authorized Participant Agreement on behalf of itself or any investor on whose behalf it will act, as the case may be,
to certain conditions, including that such Authorized Participant will make available an amount of cash sufficient to pay the Balancing Amount and the transaction fee

37

described below. The Authorized Participant may require the investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the
Balancing Amount. Investors who are not Authorized Participants must make appropriate arrangements with an Authorized Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an
Authorized Participant Agreement, and that therefore orders to purchase Creation Units of Shares may have to be placed by the investors broker through an Authorized Participant. As a result, purchase orders placed through an Authorized
Participant may result in additional charges to such investor.

Purchases through the Clearing Process

An Authorized Participant may place an order to purchase (or redeem) Creation Units (i) through the Continuous Net Settlement clearing
processes of NSCC as such processes have been enhanced to effect purchases (and redemptions) of Creation Units, such processes being referred to herein as the Enhanced Clearing Process, or (ii) outside the Enhanced Clearing Process,
being referred to herein as the Manual Clearing Process. To purchase or redeem through the Enhanced Clearing Process, an Authorized Participant must be a member of National Securities Clearing Corporation (NSCC) that is eligible to use
the Continuous Net Settlement system. For purchase orders placed through the Enhanced Clearing Process, in the Authorized Participant Agreement the Participant authorizes the Transfer Agent to transmit to the NSCC, on behalf of an Authorized
Participant, such trade instructions as are necessary to effect the Authorized Participants purchase order. Pursuant to such trade instructions to the NSCC, the Authorized Participant agrees to deliver the Portfolio Deposit and such additional
information as may be required by the Transfer Agent or the Distributor. A purchase order must be received in good order by the transfer agent by 4:00 p.m. Eastern Time, whether transmitted by mail, through the transfer agents automated
system, telephone, facsimile or other means permitted under the Authorized Participant Agreement, in order to receive that days NAV per Share. All other procedures set forth in the Authorized Participant Agreement must be followed in order for
you to receive the NAV determined on that day.

The consideration for purchase of a Creation Unit of Shares of the Fund consists of
either cash or the Deposit Securities that is a representative sample of the securities in the Funds underlying index, the Balancing Amount, and the appropriate Transaction Fee (collectively, the Portfolio Deposit). The Balancing
Amount will be the amount equal to the differential, if any, between the total aggregate market value of the Deposit Securities and the NAV of the Creation Unit(s) being purchased and will be paid to, or received from, the Trust after the NAV has
been calculated.

BNYM makes available through the NSCC on each Business Day, either immediately prior to the opening of business on the
Exchange or the night before, the list of the names and the required number of shares of each Deposit Security to be included in the current Portfolio Deposit (based on information at the end of the previous Business Day) for the Fund. Such
Portfolio Deposit is applicable, subject to any adjustments as described below, in order to effect purchases of Creation Units of Shares of a given Fund until such time as the next-announced Portfolio Deposit made available.

The identity and number of shares of the Deposit Securities required for the Fund changes as rebalancing adjustments and corporate
action events are reflected from time to time by Rafferty with a view to the investment objective of the Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the securities
constituting the relevant securities index. In addition, the Trust reserves the right to permit or require the substitution of an amount of cash (i.e., a cash in lieu amount) to be added to the Balancing Amount to replace any
Deposit Security which may not be available in sufficient quantity for delivery or for other similar reasons. The adjustments described above will reflect changes, known to Rafferty on the date of announcement to be in effect by the time of delivery
of the Portfolio Deposit, in the composition of the subject index being tracked by the relevant Fund, or resulting from stock splits and other corporate actions.

In addition to the list of names and numbers of securities constituting the current Deposit Securities of a Portfolio Deposit, on each Business
Day, the Balancing Amount effective through and including the previous Business Day, per outstanding Share of the Fund, will be made available.

Shares may be issued in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below. In these
circumstances, the initial deposit will have a greater value than the NAV of the Shares on the date the order is placed in proper form since, in addition to the available Deposit Securities, cash must be deposited in an amount equal to the sum of
(i) the Balancing Amount, plus (ii) 115% of the market value of the undelivered Deposit Securities (the Additional Cash Deposit). An additional amount of cash shall be required to

38

be deposited with the Trust, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to 115%
of the daily marked to market value of the missing Deposit Securities. The Participation Agreement will permit the Trust to buy the missing Deposit Securities any time. Authorized Participants will be liable to the Trust for the costs incurred by
the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order was
deemed received by the Distributor plus the brokerage and related transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Securities have been properly
received by the Custodian Bank or purchased by the Trust and deposited into the Trust. In addition, a transaction fee, as listed below, will be charged in all cases. The delivery of Shares so purchased will occur no later than the third Business Day
following the day on which the purchase order is deemed received by the Distributor. Due to the schedule of holidays in certain countries, however, the delivery of Shares may take longer than three Business Days following the day on which the
purchase order is received. In such cases, the local market settlement procedures will not commence until the end of local holiday periods. A list of local holidays in the foreign countries or markets relevant to the international funds is set forth
under Regular Foreign Holidays below.

All questions as to the number of shares of each security in the Deposit Securities and
the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trusts determination shall be final and binding.

Purchases Through the Manual Clearing Process

An Authorized Participant that wishes to place an order to purchase Creation Units outside the Enhanced Clearing Process must state that it is
not using the Enhanced Clearing Process and that the purchase instead will be effected through a transfer of securities and cash either through the Federal Reserve System (for cash and U.S. government securities) or directly through DTC. Purchases
(and redemptions) of Creation Units of the Fund settled outside the Enhanced Clearing Process will be subject to a higher Transaction Fee than those settled through the Enhanced Clearing Process. Purchase orders effected outside the Enhanced
Clearing Process are likely to require transmittal by the Authorized Participant earlier on the Transmittal Date than orders effected using the Enhanced Clearing Process. Those persons placing orders outside the Enhanced Clearing Process should
ascertain the deadlines applicable to DTC and the Federal Reserve System (for cash and U.S. government securities) by contacting the operations department of the broker or depository institution effectuating such transfer of the Portfolio Deposit.

Rejection of Purchase Orders

The Trust reserves the absolute right to reject a purchase order transmitted to it by the Distributor in respect of any Fund if (a) the
purchaser or group of purchasers, upon obtaining the shares ordered, would own 80% or more of the currently outstanding Shares of any Fund; (b) the Deposit Securities delivered are not as specified by Rafferty and Rafferty has not consented to
acceptance of an in-kind deposit that varies from the designated Deposit Securities; (c) acceptance of the purchase transaction order would have certain adverse tax consequences to the Fund; (d) the acceptance of the purchase transaction
order would, in the opinion of counsel, be unlawful; (e) the acceptance of the purchase transaction order would otherwise, in the discretion of the Trust or Rafferty, have an adverse effect on the Trust or the rights of beneficial owners;
(f) the value of a Cash Purchase Amount, or the value of the Balancing Amount to accompany an in-kind deposit exceed a purchase authorization limit extended to an Authorized Participant by the custodian and the Authorized Participant has not
deposited an amount in excess of such purchase authorization with the custodian by 4:00 p.m. Eastern Time on the Transmittal Date; or (g) in the event that circumstances outside the control of the Trust, the Distributor and Rafferty make it
impractical to process purchase orders. The Trust shall notify a prospective purchaser of its rejection of the order of such person. The Trust and the Distributor are under no duty, however, to give notification of any defects or irregularities in
the delivery of purchase transaction orders nor shall either of them incur any liability for the failure to give any such notification.

Redemption of Creation Units

Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a
redemption request in proper form by the Distributor on any Business Day. The Trust will not redeem Shares in amounts less than Creation Units. Beneficial owners also may sell Shares in the secondary market, but must accumulate enough Shares to
constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a

39

Creation Unit of Shares. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit.

Placement of Redemption Orders Using Enhanced Clearing Process

Orders to redeem Creation Units of Funds through the Enhanced Clearing Process must be delivered through an Authorized Participant that is a
member of NSCC that is eligible to use the Continuous Net Settlement System. A redemption order must be received in good order by the transfer agent by 4:00 p.m. Eastern Time, whether transmitted by mail, through the transfer agents automated
system, telephone, facsimile or other means permitted under the Authorized Participant Agreement, in order to receive that days NAV per Share. All other procedures set forth in the Authorized Participant Agreement must be followed in order for
you to receive the NAV determined on that day.

With respect to the Fund, Rafferty makes available through the NSCC immediately prior
to the opening of business on the Exchange on each day that the Exchange is open for business the Portfolio Securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined
below) on that day (Redemption Securities). These securities may, at times, not be identical to Deposit Securities which are applicable to a purchase of Creation Units.

The redemption proceeds for a Creation Unit consist of either cash or Redemption Securities, as announced by Rafferty through the NSCC on any
Business Day, plus the Balancing Amount. The redemption transaction fee described below is deducted from such redemption proceeds.

Placement of Redemption Orders Outside Clearing Process

Orders to redeem Creation Units of Funds outside the Clearing
Process must be delivered through a DTC Participant that has executed the Authorized Participant Agreement. A DTC Participant who wishes to place an order for redemption of Creation Units of the Fund to be effected outside the Clearing Process need
not be an Authorized Participant, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption of Creation Units will instead be effected through transfer of Shares directly through DTC or the Federal
Reserve System (for cash and U.S. government securities). A redemption order must be received in good order by the transfer agent by 4:00 p.m. Eastern Time, whether transmitted by mail, through the transfer agents automated system, telephone,
facsimile or other means permitted under the Authorized Participant Agreement, in order to receive that days NAV per Share. All other procedures set forth in the Authorized Participant Agreement must be followed in order for you to receive the
NAV determined on that day. The order must be accompanied or preceded by the requisite number of Shares of Funds specified in such order, which delivery must be made through DTC or the Federal Reserve System to the Custodian by the third Business
Day following such Transmittal Date (DTC Cut-Off Time); and (iii) all other procedures set forth in the Authorized Participant Agreement must be properly followed.

For the Fund, if it is not possible to effect deliveries of the Redemption Securities, the Fund may in its discretion exercise its option to
redeem such Shares in cash, and the redeeming shareholder will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash which the Fund may, in its sole discretion, permit. The Fund may also,
in its sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities which differs from the exact composition of the Fund Securities but does not differ in net asset value.

After the Transfer Agent has deemed an order for redemption of the Funds shares outside the Clearing Process received, the Transfer Agent
will initiate procedures to transfer the requisite Redemption Securities, which are expected to be delivered within three Business Days, and the Balancing Amount minus the Transaction Fee. In addition, with respect to Fund redemptions honored in
cash, the redeeming party will receive the Cash Redemption Amount by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the Transfer Agent. Due to the schedule of holidays in certain countries,
however, the receipt of the Cash Redemption Amount may take longer than three Business Days following the Transmittal Date. In such cases, the local market settlement procedures will not commence until the end of local holiday periods. See below for
a list of local holidays in the foreign country relevant to the international funds.

In certain instances, Authorized Participants
may create and redeem Creation Unit aggregations of the same Fund on the same trade date. In this instance, the Trust reserves the right to settle these transactions on a net basis.

40

The right of redemption may be suspended or the date of payment postponed with respect to any
Fund (1) for any period during which the New York Stock Exchange is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the New York Stock Exchange is suspended or restricted; (3) for
any period during which an emergency exists as a result of which disposal of the shares of the Funds portfolio securities or determination of its net asset value is not reasonably practicable; or (4) in such other circumstance as is
permitted by the SEC.

Regular Foreign Holidays

The Fund generally intends to effect deliveries of Creation Units and portfolio securities on a basis of T plus three
Business Days (i.e., days on which the national securities exchange is open). The Fund may effect deliveries of Creation Units and portfolio securities on a basis other than T plus three in order to accommodate local holiday schedules, to
account for different treatment among foreign and U.S. markets of dividend record dates and ex-dividend dates or under certain other circumstances. The ability of the Trust to effect in-kind creations and redemptions within three Business Days of
receipt of an order in good form is subject, among other things, to the condition that, within the time period from the date of the order to the date of delivery of the securities, there are no days that are holidays in the applicable foreign
market. For every occurrence of one or more intervening holidays in the applicable foreign market that are not holidays observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening holidays.
In addition to holidays, other unforeseeable closings in a foreign market due to emergencies may also prevent the Trust from delivering securities within normal settlement periods. The securities delivery cycles currently practicable for
transferring portfolio securities to redeeming Authorized Participants, coupled with foreign market holiday schedules, will require a delivery process longer than seven calendar days for the international funds, in certain circumstances. The
applicable holidays for certain foreign markets are listed in the table below. The proclamation of new holidays, the treatment by market participants of certain days as informal holidays (e.g., days on which no or limited
securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays or changes in local securities delivery practices could affect the information set forth herein at some time in the future.

The dates from January 1, 2014 through December 31, 2014 in which the regular holidays affecting the relevant
securities markets of the below listed countries are as follows:

Australia

Austria

Belgium

Brazil

Canada

Chile

China

January 1

January 27

March 10

April 18

April 21

April 25

June 9

August 4

October 6

November 4

December 24

December 25

December 26

December 31

January 1

January 6

April 18

April 21

May 1

May 29

June 9

June 19

August 15

December 8

December 24

December 25

December 26

December 31

January 1

April 18

April 21

May 1

May 29

June 9

July 21

August 15

November 11

December 25

December 26

January 1

March 3

March 4

March 5

April 18

April 21

May 1

June 19

July 9

November 20

December 24

December 25

December 31

January 1

February 17

April 18

May 19

July 1

August 4

September 1

October 13

November 11

December 25

December 26

January 1

April 17

April 18

May 1

May 21

July 16

August 15

September 17

September 18

September 19

October 31

December 8

December 25

December 31

January 1

January 30

January 31

February 3

February 4

February 5

February 6

February 7

April 7

May 1

May 2

June 2

September 8

October 1

October 2

October 3

October 6

October 7

Colombia

Czech Republic

Denmark

Egypt

Finland

France

Germany

January 1

January 6

March 24

April 17

April 18

May 1

June 2

June 23

January 1

April 21

May 1

May 8

October 28

November 17

December 24

December 25

January 1

April 17

April 18

April 21

May 16

May 29

May 30

June 5

January 1

January 7

January 13

January 14

April 20

April 21

May 1

July 1

January 1

January 6

April 17

April 18

April 21

May 1

May 29

June 20

January 1

April 18

April 21

May 1

May 8

May 29

June 9

July 14

January 1

April 18

April 21

May 1

May 29

June 9

June 19

October
3

41

June 30

August 7

August 18

October 13

November 3

November 17

December 8

December 25

December 26

June 9

December 24

December 25

December 26

December 31

July 23

July 29

July 30

July 31

October 5

October 6

December 24

December 25

December 26

December 31

August 15

November 11

December 25

December 26

December 24

December 25

December 26

December 31

Greece

Hong Kong

Hungary

India

Indonesia

Ireland

Israel

January 1

January 6

March 3

March 25

April 18

April 21

May 1

June 9

August 15

October 28

December 24

December 25

December 26

January 1

January 31

February 3

April 18

April 21

May 1

May 6

June 2

July 1

September 9

October 1

October 2

December 25

December 26

January 1

April 21

May 1

May 2

May 10

June 9

August 20

October 18

October 23

October 24

December 13

December 24

December 25

December 26

January 14

February 19

February 27

March 17

March 31

April 1

April 8

April 14

April 18

May 1

May 14

July 1

July 29

August 15

August 18

August 29

October 2

October 3

October 6

October 23

October 24

November 4

November 6

December 25

January 1

January 14

January 31

March 31

April 18

May 1

May 15

May 27

May 29

July 28

July 29

July 30

July 31

August 1

December 25

December 26

December 31

January 1

January 20

February 17

March 17

April 18

April 21

May 1

May 5

May 26

June 2 July 4

August 4

August 25

September 1

October 13

October 27

November 11

November 27

December 25

December 26

March 16

April 14

April 15

April 16

April 17

April 20

April 21

May 5

May 6

June 3

June 4

August 5

September 24

September 25

September 26

October 3

October 8

October 9

October 12

October 13

October 14

October 15

October 16

Italy

Japan

Korea

Malaysia

Mexico

Morocco

The Netherlands

January 1

January 6

April 18

April 21

April 25

May 1

June 2

August 15

December 8

December 24

December 25

December 26

December 31

January 1

January 2

January 3

January 13

February 11

March 21

April 29

May 5

May 6

July 21

September 15

September 23

October 13

November 3

November 24

December 23

December 31

January 1

January 30

January 31

May 1

May 5

May 6

June 6

August 15

September 8

September 9

September 10

October 3

October 9

December 25

December 31

January 1

January 14

January 17

January 30

January 31

February 3

May 1

May 13

July 15

July 28

September 1

September 16

October 6

October 23

December 25

January 1

February 3

March 17

April 17

April 18

May 1

September 16

November 17

December 12

December 25

January 1

January 13

January 14

January 15

May 1

July 29

July 30

August 14

August 20

August 21

October 6

November 6

November 18

January 1

April 18

April 21

May 1

December 25

December 26

New Zealand

Norway

Peru

The Philippines

Poland

Portugal

Russia

January 1

January 2

January 20

January 27

February 6

April 18

April 21

January 1

April 16

April 17

April 18

April 21

May 1

May 29

January 1

April 17

April 18

May 1

July 28

July 29

October 8

January 1

January 31

April 9

April 17

April 18

May 1

June 12

January 1

January 6

April 18

April 21

May 1

June 19

August 15

January 1

April 18

April 21

April 25

May 1

June 10

June 13

January 1

January 2

January 3

January 6

January 7

January 8

March 7

42

April 25

June 2

October 27

December 25

December 26

June 9

December 24

December 25

December 26

December 31

December 8

December 25

August 21

August 25

December 24

December 25

December 26

December 30

December 31

November 11

December 24

December 25

December 26

December 31

August 15

December 8

December 24

December 25

December 26

December 31

March 10

April 30

May 1

May 2

May 8

May 9

June 11

June 12

June 13

November 3

November 4

December 31

Singapore

South Africa

Spain

Sweden

Switzerland

Taiwan

Thailand

January 1

January 30

January 31

April 18

May 1

May 13

July 28

October 6

October 23

December 25

January 1

March 21

April 18

April 21

April 28

May 1

June 16

September 24

December 16

December 25

December 26

January 1

January 6

April 18

April 21

May 1

December 24

December 25

December 26

December 31

January 1

January 6

April 17

April 18

April 21

April 30

May 1

May 28

May 29

June 6

June 20

October 31

December 24

December 25

December 26

December 31

January 1

January 2

April 18

April 21

April 28

May 1

May 29

June 9

August 1

September 15

December 24

December 25

December 26

December 31

January 1

January 28

January 29

January 30

January 31

February 3

February 4

February 28

April 4

May 1

June 2

September 8

October 10

January 1

February 14

April 7

April 14

April 15

May 1

May 5

May 13

July 1

July 11

August 12

October 23

December 5

December 10

December 31

Turkey

United Kingdom

January 1

April 23

May 1

July 28

July 29

July 30

October 6

October 7

October 28

October 29

January 1

January 20

February 17

April 18

April 21

May 1

May 5

May 26

July 4

August 25

September 1

October 13

November 11

November 27

December 25

December 26

Redemption

The longest redemption cycle for the international funds is a function of the longest redemption cycles among the countries whose stocks are
held by a fund.

Transaction Fees

Transaction fees are imposed as set forth in the table in the Prospectus. Transaction Fees payable to the Trust are imposed to compensate the
Trust for the transfer and other transaction costs of the Fund associated with the issuance and redemption of Creation Units of Shares. There is a fixed and a variable component to the total Transaction Fee. A fixed Transaction Fee is applicable to
each creation or redemption transaction, regardless of the number of Creation Units purchased or redeemed. In addition, a variable Transaction Fee based upon the value of each Creation Unit also is applicable to each redemption transaction.

43

Purchasers of Creation Units of the Fund for cash are required to pay an additional charge to
compensate the relevant Fund for brokerage and market impact expenses relating to investing in portfolios securities. Where the Trust permits an in-kind purchaser to substitute cash in lieu of depositing a portion of the Deposit Securities, the
purchaser will be assessed an additional charge for cash purchases.

Purchasers of Shares in Creation Units are responsible for the
costs of transferring the securities constituting the Deposit Securities to the account of the Trust. The purchase transaction fees for in-kind purchases and cash purchases (when available) are listed in the table below. Investors will also bear the
costs of transferring securities from the Fund to their account or on their order. Investors who use the services of a broker or other such intermediary may be charged a fee for such services. In addition, Rafferty may, from time to time, at its own
expense, compensate purchasers of Creation Units who have purchased substantial amounts of Creation Units and other financial institutions for administrative or marketing services.

Continuous Offering

The method by which Creation Units of Shares are created and traded may raise certain issues under applicable securities laws. Because new
Creation Units of Shares are issued and sold by the Trust on an ongoing basis, at any point a distribution, as such term is used in the Securities Act, may occur. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the
Securities Act. For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent Shares, and sells some or all of the
Shares comprising such Creation Units directly to its customers; or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether
a person is an underwriter for the purposes of the Securities Act depends upon all the facts and circumstances pertaining to that persons activities. Thus, the examples mentioned above should not be considered a complete description of all the
activities that could lead to a categorization as an underwriter. Broker-dealer firms should also note that dealers who are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to
deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Broker-dealer firms should note
that dealers who are not underwriters but are participating in a distribution (as contrasted to ordinary secondary market transaction), and thus dealing with Shares that are part of an unsold allotment within the meaning of
section 4(3)(C) of the Securities Act, would be unable to take advantage of the prospectus delivery exemption provided by section 4(3) of the Securities Act. Firms that incur a prospectus-delivery obligation with respect to Shares are reminded that
under Securities Act Rule 153 a prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed to a national securities exchange member in connection with a sale on the national securities exchange is satisfied by the fact that
the Funds prospectus is available at the national securities exchange on which the Shares of such Fund trade upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on a national
securities exchange and not with respect to upstairs transactions.

DIVIDENDS, OTHER
DISTRIBUTIONS AND TAXES

Dividends and other Distributions

As stated in the Prospectus, the Fund declares and distributes dividends to its shareholders from its net investment income at least
annually; for these purposes, net investment income includes dividends, accrued interest, and accretion of original issue discount (OID) and market discount, less amortization of market premium and estimated expenses, and is calculated
immediately prior to the determination of the Funds NAV per share. The Fund also distributes the excess of its net short-term capital gain over net long-term capital loss (short-term gain), if any, annually but may make more
frequent distributions thereof if necessary to avoid federal income or excise taxes. The Fund may realize net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) and thus anticipates making annual
distributions thereof. The Trustees may revise this distribution policy, or postpone the payment of distributions, if the Fund has or anticipates any large unexpected expense, loss or fluctuation in net assets that, in the Trustees opinion,
might have a significant adverse effect on its shareholders.

44

Investors should be aware that if shares are purchased shortly before the record date for any
dividend or capital gain distribution, the shareholder will pay full price for the shares and receive some portion of the purchase price back as a taxable distribution (with the tax consequences described in the Prospectus).

Taxes

Regulated Investment Company Status. The Fund is treated as a separate corporation for federal tax purposes and intends to
qualify for treatment as a RIC. If the Fund so qualifies and satisfies the Distribution Requirement (defined below) for a taxable year, it will not be subject to federal income tax on the part of its investment company taxable income (generally
consisting of net investment income, short-term gain, and net gains and losses from certain foreign currency transactions, all determined without regard to any deduction for dividends paid) and net capital gain it distributes to its shareholders for
that year.

To qualify for treatment as a RIC, the Fund must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (Distribution Requirement) and must meet several additional requirements. For the Fund, these requirements include the following: (1) the Fund must derive at least 90% of its gross income each
taxable year from the following sources (collectively, Qualifying Income): (a) dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of securities or foreign currencies, or
other income (including gains from options, futures, or forward contracts) derived with respect to its business of investing in securities or those currencies, and (b) net income from an interest in a qualified publicly traded
partnership (QPTP) (Income Requirement); and (2) at the close of each quarter of the Funds taxable year, (a) at least 50% of the value of its total assets must be represented by cash and cash items, U.S.
government securities, securities of other RICs and other securities, with those other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Funds total assets and that does not represent
more than 10% of the issuers outstanding voting securities (equity securities of QPTPs being considered voting securities for these purposes), and (b) not more than 25% of the value of its total assets may be invested in
(i) securities (other than U.S. government securities or the securities of other RICs) of any one issuer, (ii) securities (other than securities of other RICs) of two or more issuers the Fund controls that are determined to be engaged in
the same, similar or related trades or businesses, or (iii) securities of one or more QPTPs (collectively, Diversification Requirements). The Internal Revenue Service (Service) has ruled that income from a derivative
contract on a commodity index generally is not Qualifying Income.

Although the Fund intends to satisfy, or to continue to satisfy, all the
foregoing requirements, there is no assurance that the Fund will be able to do so. The investment by the Fund primarily in options and futures positions entails some risk that it might fail to satisfy one or both of the Diversification Requirements.
There is some uncertainty regarding the valuation of such positions for purposes of those requirements; accordingly, it is possible that the method of valuation the Fund uses, pursuant to which each of them would expect to be treated as satisfying
the Diversification Requirements, would not be accepted in an audit by the Service, which might apply a different method resulting in disqualification of one or more Funds.

If the Fund failed to qualify for treatment as a RIC for any taxable year, (1) its taxable income, including net capital gain, would be
taxed at corporate income tax rates (up to 35%), (2) it would not receive a deduction for the distributions it makes to its shareholders, and (3) the shareholders would treat all those distributions, including distributions of net capital
gain, as dividends (that is, ordinary income, except for the part of those dividends that is qualified dividend income (described in the Prospectus) (QDI) if certain holding period and other requirements are met) to the
extent of the Funds earnings and profits; those dividends would be eligible for the dividends-received deduction available to corporations under certain circumstances. In addition, the Fund would be required to recognize unrealized gains, pay
substantial taxes and interest, and make substantial distributions before requalifying for RIC treatment. However, the Regulated Investment Company Modernization Act of 2010 (RIC Mod Act) provides certain savings provisions that enable a
RIC to cure a failure to satisfy any of the Income and Diversification Requirements as long as the failure is due to reasonable cause and not due to willful neglect and the RIC pays a deductible tax calculated in accordance with those
provisions and meets certain other requirements.

Excise Tax. The Fund will be subject to a nondeductible 4% excise tax
(Excise Tax) to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary income for that year and capital gain net income for the one-year period ending on October 31 of that year, plus
certain other amounts.

Income from Foreign Securities. Dividends and interest the Fund receives, and gains it realizes, on
foreign securities may be subject to income, withholding, or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield and/or total return on its securities. Tax conventions between certain countries and the United
States may

45

reduce or eliminate these taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors.

Gains or losses (1) from the disposition of foreign currencies, including forward currency contracts, (2) on the disposition of each
foreign-currency-denominated debt security that are attributable to fluctuations in the value of the foreign currency between the dates of acquisition and disposition of the security, and (3) that are attributable to fluctuations in exchange
rates that occur between the time the Fund accrues dividends, interest, or other receivables, or expenses or other liabilities, denominated in a foreign currency and the time the Fund actually collects the receivables or pays the liabilities,
generally will be treated as ordinary income or loss. These gains or losses will increase or decrease the amount of the Funds investment company taxable income to be distributed to its shareholders.

The Fund may invest in the stock of passive foreign investment companies (PFICs). A PFIC is any foreign corporation
(with certain exceptions) that, in general, meets either of the following tests for a taxable year: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of,
passive income. Under certain circumstances, the Fund will be subject to federal income tax on a portion of any excess distribution it receives on the stock of a PFIC or of any gain on its disposition of the stock (collectively,
PFIC income), plus interest thereon, even if the Fund distributes the PFIC income as a dividend to its shareholders. The balance of the PFIC income will be included in the Funds investment company taxable income and, accordingly,
will not be taxable to it to the extent it distributes that income to its shareholders. Fund distributions thereof will not be eligible for the maximum federal income tax rates applicable to QDI.

If the Fund invests in a PFIC and elects to treat the PFIC as a qualified electing fund (QEF), then, in lieu of the
foregoing tax and interest obligation, the Fund would be required to include in income each taxable year its pro rata share of the QEFs annual ordinary earnings and net capital gain -- which the Fund probably would have to distribute to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax -- even if the Fund did not receive those earnings and gain from the QEF. In most instances it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.

The Fund may elect to mark to market its stock in any PFIC. Marking-to-market, in
this context, means including in gross income each taxable year (and treating as ordinary income) the excess, if any, of the fair market value of the PFICs stock over the Funds adjusted basis therein as of the end of that year. Pursuant
to the election, the Fund also would be allowed to deduct (as an ordinary, not a capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock the Fund included in income for prior taxable years under the election. The Funds adjusted basis in each PFICs stock with respect to which it makes this election would be adjusted to
reflect the amounts of income included and deductions taken thereunder.

Derivatives Strategies. The use of derivatives
strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward contracts, involves complex rules that will determine for income tax purposes the amount, character, and timing of recognition of the gains
and losses the Fund realizes in connection therewith. Gains from the disposition of foreign currencies (except certain gains therefrom that may be excluded by future regulations), and gains from options, futures, and forward contracts the Fund
derives with respect to its business of investing in securities or foreign currencies, will be treated as Qualifying Income. The Fund will monitor its transactions, make appropriate tax elections, and make appropriate entries in its books and
records when it acquires any foreign currency, option, futures contract, forward contract, or hedged investment to mitigate the effect of these rules, seek to prevent its disqualification as a RIC, and minimize the imposition of federal income and
excise taxes.

Some futures contracts, foreign currency contracts that are traded in the interbank market, and nonequity
options (i.e., certain listed options, such as those on a broad-based securities index)except any securities futures contract that is not a dealer securities futures contract (both as defined in the
Code) and any interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreementin which the Fund invests may be subject to Code
section 1256 (collectively section 1256 contracts). Section 1256 contracts that the Fund holds at the end of its taxable year must be marked to market (that is, treated as having been sold at that time for their fair
market value) for federal income tax purposes, with the result that unrealized gains or losses will be treated as though they were realized. Sixty percent of any net gain or loss recognized on these deemed sales, and 60% of any net realized gain or
loss from any actual sales of section 1256 contracts, will be treated as long-term capital gain or loss, and the balance will be treated as short-term capital gain or loss. These rules may operate to increase the amount that the Fund must distribute
to satisfy the Distribution Requirement (i.e., with respect to the portion treated as short-term capital gain), which will be taxable to its shareholders as ordinary income

46

when distributed to them, and to increase the net capital gain the Fund recognizes, without in either case increasing the cash available to it. The Fund may elect not to have the foregoing rules
apply to any mixed straddle (that is, a straddle, which the Fund clearly identifies in accordance with applicable regulations, at least one (but not all) of the positions of which are section 1256 contracts), although doing so may have
the effect of increasing the relative proportion of short-term capital gain (taxable as ordinary income) and thus increasing the amount of dividends it must distribute. Section 1256 contracts also may be marked-to-market for purposes of the
Excise Tax.

Code section 1092 (dealing with straddles) also may affect the taxation of options, futures, and forward contracts in which
the Fund may invest. That section defines a straddle as offsetting positions with respect to actively traded personal property; for these purposes, options, futures, and forward contracts are positions in personal property. Under that
section, any loss from the disposition of a position in a straddle may be deducted only to the extent the loss exceeds the unrealized gain on the offsetting position(s) of the straddle. In addition, these rules may postpone the recognition of loss
that otherwise would be recognized under the mark-to-market rules discussed above. The regulations under section 1092 also provide certain wash sale rules, which apply to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period, and short sale rules applicable to straddles. If the Fund makes certain elections, the amount, character, and timing of recognition of gains and losses from the affected
straddle positions would be determined under rules that vary according to the elections made. Because only a few of the regulations implementing the straddle rules have been promulgated, the tax consequences to the Fund of straddle transactions are
not entirely clear.

If a call option written by the Fund lapses (i.e., terminates without being exercised), the amount of
the premium it received for the option will be short-term capital gain. If the Fund enters into a closing purchase transaction with respect to a written call option, it will have a short-term capital gain or loss based on the difference between the
premium it received for the option it wrote and the premium it pays for the option it buys. If such an option is exercised and the Fund thus sells the securities or futures contract subject to the option, the premium the Fund received will be added
to the exercise price to determine the gain or loss on the sale. If a call option purchased by the Fund lapses, it will realize short-term or long-term capital loss, depending on its holding period for the option. If the Fund exercises a purchased
call option, the premium it paid for the option will be added to the basis in the subject securities or futures contract.

If
the Fund has an appreciated financial position -- generally, an interest (including an interest through an option, futures, or forward contract or short
sale) with respect to any stock, debt instrument (other than straight debt), or partnership interest the fair market value of which exceeds its adjusted basis
-- and enters into a constructive sale of the position, the Fund will be treated as having made an actual sale thereof, with the result that it will
recognize gain at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract, or a futures or forward contract the Fund or a related person enters into with respect to the same or substantially
identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not
apply, however, to any Funds transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the Fund holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is the Funds risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially identical
or related property, such as having an option to sell, being contractually obligated to sell, making a short sale, or granting an option to buy substantially identical stock or securities).

Income from Zero-Coupon and Payment-in-Kind Securities. The Fund may acquire zero-coupon or other securities (such as strips)
issued with OID. As a holder of those securities, the Fund must include in its gross income the OID that accrues on the securities during the taxable year, even if it receives no corresponding payment on them during the year. Similarly, the Fund
must include in its gross income securities it receives as interest on payment-in-kind securities. With respect to market discount bonds (i.e., bonds purchased at a price less than their issue price plus the portion of OID
previously accrued thereon), the Fund may elect to accrue and include in income each taxable year a portion of the bonds market discount. Because the Fund annually must distribute substantially all of its investment company taxable income,
including any accrued OID and other non-cash income, to satisfy the Distribution Requirement and avoid imposition of the Excise Tax, the Fund may be required in a particular year to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. Those distributions will be made from the Funds cash assets or from the proceeds of sales of portfolio securities, if necessary. The Fund may realize capital gains or losses from those sales, which would
increase or decrease its investment company taxable income and/or net capital gain.

47

Taxation of Shareholders.

Basis Election and Reporting. A shareholders basis in Shares of the Fund that he or she acquires after December 31, 2011
(Covered Shares), will be determined in accordance with the Funds default method, which is average basis, unless the shareholder affirmatively elects in writing (which may be electronic) to use a different acceptable basis
determination method, such as a specific identification method. The basis determination method the Fund shareholder elects (or the default method) may not be changed with respect to a redemption of Covered Shares after the settlement date of the
redemption.

In addition to the requirement to report the gross proceeds from redemptions of shares, the Fund (or its administrative
agent) must report to the Service and furnish to its shareholders the basis information for Covered Shares and indicate whether they had a short-term (one year or less) or long-term (more than one year) holding period. Fund shareholders should
consult with their tax advisers to decide the best Service-accepted basis determination method for their tax situation and to obtain more information about how the basis reporting law applies to them.

Foreign Account Tax Compliance Act (FATCA). As mentioned in the Prospectus, under FATCA foreign financial
institutions (FFIs) or non-financial foreign entities (NFFEs) that are Fund shareholders may be subject to a generally nonrefundable 30% withholding tax on (1) income dividends the Fund pays after
June 30, 2014, and (2) certain capital gain distributions and the proceeds of a redemption of Shares the Fund pays after December 31, 2016. That withholding tax generally can be avoided, however, as discussed below.

An FFI can avoid FATCA withholding by becoming a participating FFI, which requires the FFI to enter into a tax compliance
agreement with the Service. Under such an agreement, a participating FFI agrees to (1) verify and document whether it has U.S. accountholders, (2) report certain information regarding their accounts to the Service, and (3) meet
certain other specified requirements.

The U.S. Treasury has negotiated intergovernmental agreements (IGAs) with certain
countries and is in various stages of negotiations with other foreign countries with respect to one or more alternative approaches to implement FATCA; entities in those countries may be required to comply with the terms of the IGA instead of
Treasury regulations. An FFI resident in a country that has entered into a Model I IGA with the United States must report to that countrys government (pursuant to the terms of the applicable IGA and applicable law), which will, in turn, report
to the Service. An FFI resident in a Model II IGA country generally must comply with U.S. regulatory requirements, with certain exceptions, including the treatment of recalcitrant accountholders. An FFI resident in one of those countries that
complies with whichever of the foregoing applies will be exempt from FATCA withholding.

An NFFE that is the beneficial owner of a
payment from the Fund can avoid FATCA withholding generally by certifying that it does not have any substantial U.S. owners or by providing the name, address, and taxpayer identification number of each such owner. The NFFE will report to the Fund or
other applicable withholding agent, which will, in turn, report information to the Service.

Those non-U.S. shareholders also may fall
into certain exempt, excepted, or deemed compliant categories established by Treasury regulations, IGAs, and other guidance regarding FATCA. An FFI or NFFE that invests in the Fund will need to provide the Fund with documentation properly certifying
the entitys status under FATCA to avoid FATCA withholding. The requirements imposed by FATCA are different from, and in addition to, the tax certification rules to avoid backup withholding described above. Foreign investors are urged to
consult their tax advisers regarding the application of these requirements to their own situation and the impact thereof on their investment in the Fund.

Pursuant to the RIC Mod Act, capital losses sustained in future taxable years will not expire and may be carried over without limitation.

* * * * *

The foregoing is only a general summary of some of the important federal tax considerations generally affecting the Fund. No attempt is made
to present a complete explanation of the federal tax treatment of the Funds activities, and this discussion is not intended as a substitute for careful tax planning. Accordingly, potential investors are urged to

48

consult their own tax advisers for more detailed information and for information regarding any state, local, or foreign taxes applicable to the Fund and to distributions therefrom.

FINANCIAL STATEMENTS

The Funds financial statements for the period ended October 31, 2013, are incorporated herein by reference from the Funds
Annual Report to Shareholders dated October 31, 2013.

To receive a copy of the Prospectus or Annual or Semi-Annual Report to
shareholders, without charge, write to or call the Trust at the contact information listed below:

Write to:

Direxion Shares ETF Trust

1301 Avenue of the
Americas (6th Avenue), 35th Floor

New York, New York 10019

Call:

866-476-7523

By Internet:

www.direxionfunds.com

49

APPENDIX A

Description of Corporate Bond Ratings

Moodys Investors Service and Standard and Poors Corporation are two prominent independent rating agencies that rate the quality of
bonds. Following are expanded explanations of the ratings shown in the Prospectus and this SAI.

Moodys Investors Service
 Long-Term Corporate Obligation Ratings

Moodys long-term obligation ratings are opinions of the relative credit risk
of fixed-income obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings have been published by Moodys Investors Service, Inc. and
Moodys Analytics Inc. and reflect both the likelihood of default and any financial loss suffered in the event of default.

Aaa: Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.

Aa: Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.

A: Obligations rated A are considered upper-medium grade and are subject to low credit risk.

Baa: Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain
speculative characteristics.

Ba: Obligations rated Ba are judged to have speculative elements and are subject to substantial
credit risk.

B: Obligations rated B are considered speculative and are subject to high credit risk.

Caa: Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.

Ca: Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal
and interest.

C: Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for
recovery of principal or interest.

Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that
generic rating category.

Moodys Investors Service  Municipal Bond Ratings

The following descriptions of Moodys long-term municipal bond ratings have been published by Moodys Investors Service, Inc. and
Moodys Analytics Inc.

Aaa: Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative to other US
municipal or tax-exempt issuers or issues.

Aa: Issuers or issues rated Aa demonstrate very strong creditworthiness relative to
other US municipal or tax-exempt issuers or issues.

A: Issuers or issues rated A present above-average creditworthiness relative
to other US municipal or tax-exempt issuers or issues.

A-1

Baa: Issuers or issues rated Baa represent average creditworthiness relative to other US
municipal or tax- exempt issuers or issues.

Ba: Issuers or issues rated Ba demonstrate below-average creditworthiness relative to
other US municipal or tax-exempt issuers or issues.

B: Issuers or issues rated B demonstrate weak creditworthiness relative to
other US municipal or tax- exempt issuers or issues.

Caa: Issuers or issues rated Caa demonstrate very weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.

Ca: Issuers or issues rated Ca demonstrate extremely weak
creditworthiness relative to other US municipal or tax-exempt issuers or issues.

C: Issuers or issues rated C demonstrate the
weakest creditworthiness relative to other US municipal or tax-exempt issuers or issues.

Note: Moodys appends numerical
modifiers 1, 2, and 3 to each generic rating category from Aa through Caa. The modifier 1 indicates that the issuer or obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates a ranking in the lower end of that generic rating category.

Standard and Poors  Long-Term Corporate and Municipal Bond
Ratings

Issue credit ratings are based, in varying degrees, on the following considerations:



Likelihood of paymentcapacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms
of the obligation;



Nature of and provisions of the obligation;



Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors rights.

Issue ratings are an assessment of default risk, but may
incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation
may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)

AAA: An obligation rated AAA has the highest rating assigned by S&P. The obligors capacity to meet its financial
commitment on the obligation is extremely strong.

AA: An obligation rated AA differs from the highest-rated
obligations only to a small degree. The obligors capacity to meet its financial commitment on the obligation is very strong.

A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories. However, the obligors capacity to meet its financial commitment on the obligation is still strong.

BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

A-2

BB, B, CCC, CC, and C: Obligations rated BB, B, CCC,
CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

BB: An
obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligors
inadequate capacity to meet its financial commitment on the obligation.

B: An obligation rated B is more vulnerable to
nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligors capacity or
willingness to meet its financial commitment on the obligation.

CCC: An obligation rated CCC is currently vulnerable
to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not
likely to have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated CC is
currently highly vulnerable to nonpayment.

C: A C rating is assigned to obligations that are currently highly
vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among
others, the C rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instruments terms or when preferred stock is the subject of a
distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.

D: An obligation rated D is in payment default. The D rating category is used when payments on an obligation,
including a regulatory capital instrument, are not made on the date due even if the applicable grace period has not expired, unless Standard & Poors believes that such payments will be made during such grace period. The D
rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized. An obligations rating is lowered to D upon completion of a distressed exchange offer,
whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.

NR: This indicates that no rating has been requested,
that there is insufficient information on which to base a rating, or that Standard & Poors does not rate a particular obligation as a matter of policy.

NP: Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.

Note: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the senior-most long-term rating of the issuer, its
guarantor or support-provider.

Standard and Poors  Commercial Paper Ratings

A-1: A short-term obligation rated A-1 is rated in the highest category by Standard & Poors. The
obligors capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitment on
these obligations is extremely strong.

A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligors capacity to meet its financial commitment on the obligation is satisfactory.

A-3: A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

B: A short-term obligation rated B is regarded as having significant speculative characteristics. Ratings of
B-1, B-2, and B-3 may be assigned to indicate finer distinctions within the B category. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.

B-1: A short-term obligation rated B-1 is regarded as having significant speculative characteristics, but the obligor has a
relatively stronger capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.

B-2: A short-term obligation rated B-2 is regarded as having significant speculative characteristics, and the obligor has
an average speculative-grade capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.

A-4

B-3: A short-term obligation rated B-3 is regarded as having significant
speculative characteristics, and the obligor has a relatively weaker capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.

C: A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial commitment on the obligation.

D: A short-term obligation
rated D is in payment default. The D rating category is used when payments on an obligation, including a regulatory capital instrument, are not made on the date due even if the applicable grace period has not expired, unless
Standard & Poors believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.

Dual Ratings: S&P assigns dual ratings to all debt issues that have a put option or demand feature as
part of their structure. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term rating symbols are used for bonds to denote the long-term
maturity and the short-term rating symbols for the put option (for example, AAA/A-1+). With U.S. municipal short-term demand debt, note rating symbols are used with the short-term issue credit rating symbols (for example,
SP-1+/A-1+).

A-5

APPENDIX B

Direxion Shares ETF Trust

Proxy Voting Policies and Procedures

Recognizing the increased scrutiny that both institutions and corporations are under, it is important to have corporate governance that
appreciates the importance of consistently applied policy guidelines that are aligned with investors views on key issues. With this in mind we currently use ISSs proxy voting service to execute ballots on behalf of the Direxion Shares
ETF Trust (collectively, the Trust). ISS prepares custom research and votes per their recommendation. If we agree with their recommendation, no action is required. However, we retain the right and ability to override the vote if you
disagree with ISSs vote recommendation.

I.

Duty to Vote Proxies

Rafferty Asset Management, LLC (Rafferty) views seriously its responsibility to exercise voting authority over
securities that are owned by the Trust.

To document that proxies are being voted, ISS (on behalf of the Trust) will
maintain a record reflecting when and how each proxy is voted consistent with the requirements of Rule 206(4)-6 under the Investment Advisors Act of 1940 and other applicable regulations. Rafferty will make its proxy voting history and policies and
procedures available to shareholders upon request.

II.

Guidelines for Voting Proxies

Rafferty generally follows the recommendations of ISSs proxy voting guidelines as outlined below. Proxy proposals are
considered on their own merits and a determination is made as to support or oppose managements recommendation. Rafferty will typically accept ISSs recommendations on social issues as it does not have the means to evaluate the economic
impact of such proposals, or determine a consensus among shareholders social or political viewpoints.

III.

Review and Compliance

It is Raffertys responsibility to oversee ISSs proxy voting to ensure compliance and timely reporting to US Bank.
Reports are verified monthly through ISSs Votex website. ISS provides US Bank with the NP-X file covering the period from July 1st through June 30th of the following year. US Bank files the NP-X with the SEC on the Trusts behalf. These records are maintained for five years and the previous two years proxy voting records can be accessed by
contacting US Bank.

Below is a summary outlining ISSs US Proxy Voting Guidelines.

B-1

Routine/Miscellaneous

Auditor Ratification

Vote for proposals to
ratify auditors unless any of the following apply:



An auditor has a financial interest in or association with the company, and is therefore not independent;



There is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the companys financial
position;



Poor accounting practices are identified that rise to a serious level of concern, such as: fraud; misapplication of GAAP, or material weaknesses identified in
Section 404 disclosures; or

Four fundamental principles apply when determining votes on director nominees:

1.

Accountability

2.

Responsiveness

3.

Composition

4.

Independence

Generally vote for
director nominees, except under the following circumstances:

1. Accountability

Vote against(1) or withhold from the entire board of directors (except new nominees(2), who should be considered case-by- case) for the following:

Problematic Takeover Defenses

Classified Board Structure:

1.1.

The board is classified, and a continuing director responsible for a problematic governance issue at the board/committee level that would warrant a
withhold/against vote recommendation is not up for election. All appropriate nominees (except new) may be held accountable.

Director Performance Evaluation:

1.2.

The board lacks accountability and oversight, coupled with sustained poor performance relative to peers. Sustained poor performance is measured by one- and
three-year total shareholder returns in the bottom half of a companys four-digit GICS industry group (Russell 3000 companies only). Take into consideration the companys five-year total shareholder return and operational metrics.
Problematic provisions include but are not limited to:



A classified board structure;



A supermajority vote requirement;



Either a plurality vote standard in uncontested director elections or a majority vote standard with no plurality carve-out for contested elections;



The inability of shareholders to call special meetings;



The inability of shareholders to act by written consent;



A dual-class capital structure; and/or



A nonshareholder-approved poison pill.

Poison Pills:

1.3.

The companys poison pill has a dead-hand or modified dead-hand feature. Vote against or withhold from nominees every year until
this feature is removed;

1.4.

The board adopts a poison pill with a term of more than 12 months (long-term pill), or renews any existing pill, including any
short-term pill (12 months or less), without shareholder approval. A commitment or policy that puts a newly adopted pill to a binding shareholder vote may potentially offset an adverse vote recommendation. Review such companies with
classified boards every year, and such companies with annually elected boards at least once every three years, and vote against or withhold votes from all nominees if the company still maintains a non-shareholder-approved poison pill; or

1.5.

The board makes a material adverse change to an existing poison pill without shareholder approval.

(1)

In general, companies with a plurality vote standard use Withhold as the contrary vote option in director elections; companies with a majority
vote standard use Against. However, it will vary by company and the proxy must be checked to determine the valid contrary vote option for the particular company.

(2)

A new nominee is any current nominee who has not already been elected by shareholders and who joined the board after the problematic action in
question transpired. If ISS cannot determine whether the nominee joined the board before or after the problematic action transpired, the nominee will be considered a new nominee if he or she joined the board within the 12 months prior to
the upcoming shareholder meeting.

B-2

Vote case-by-case on all nominees if:

1.6.

The board adopts a poison pill with a term of 12 months or less (short-term pill) without shareholder approval, taking into account the following
factors:



The date of the pills adoption relative to the date of the next meeting of shareholdersi.e. whether the company had time to put the pill on ballot
for shareholder ratification given the circumstances;



The issuers rationale;



The issuers governance structure and practices; and



The issuers track record of accountability to shareholders.

Problematic Audit-Related Practices

Generally vote against or withhold from the members of the Audit Committee if:

1.7.

The non-audit fees paid to the auditor are excessive (see discussion under Auditor Ratification);

1.8.

The company receives an adverse opinion on the companys financial statements from its auditor; or

1.9.

There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the audit firm.

Vote case-by-case on members of the
Audit Committee, and potentially the full board, if:

1.10.

Poor accounting practices are identified that rise to a level of serious concern, such as: fraud, misapplication of GAA; and material weaknesses identified in
Section 404 disclosures. Examine the severity, breadth, chronological sequence, and duration, as well as the companys efforts at remediation or corrective actions, in determining whether withhold/against votes are warranted.

Problematic Compensation Practices/Pay for Performance Misalignment

In the absence of an Advisory Vote on Executive Compensation ballot item or in egregious situations, vote against or withhold from the members of the
Compensation Committee, and potentially the full board, if:

1.11.

There is a significant misalignment between CEO pay and company performance (pay for performance);

1.12.

The company maintains significant problematic pay practices;

1.13.

The board exhibits a significant level of poor communication and responsiveness to shareholders;

1.14.

The company fails to submit one-time transfers of stock options to a shareholder vote; or

1.15.

The company fails to fulfill the terms of a burn rate commitment made to shareholders.

Vote case-by-case on Compensation Committee members (or, in exceptional cases, the full board) and the Management

Say-on-Pay proposal if:

1.16.

The companys previous say-on-pay proposal received the support of less than 70 percent of votes cast, taking into account:



The companys response, including:

o

Disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support;

o

Specific actions taken to address the issues that contributed to the low level of support;

o

Other recent compensation actions taken by the company;



Whether the issues raised are recurring or isolated;



The companys ownership structure; and



Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.

Governance Failures

Under extraordinary
circumstances, vote against or withhold from directors individually, committee members, or the entire board, due to:

1.17.

Material failures of governance, stewardship, risk oversight(3), or fiduciary responsibilities at the
company;

1.18.

Failure to replace management as appropriate; or

1.19.

Egregious actions related to a directors service on other boards that raise substantial doubt about his or her ability to effectively oversee management
and serve the best interests of shareholders at any company.

2. Responsiveness

Vote case-by-case on individual directors, committee members, or the entire board of directors, as appropriate, if:

2.1.

The board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous year. Factors that will be
considered are:



Disclosed outreach efforts by the board to shareholders in the wake of the vote;



Rationale provided in the proxy statement for the level of implementation;



The subject matter of the proposal;



The level of support for and opposition to the resolution in past meetings;



Actions taken by the board in response to the majority vote and its engagement with shareholders;



The continuation of the underlying issue as a voting item on the ballot (as either shareholder or management proposals); and



Other factors as appropriate.

(3)

Examples of failure of risk oversight include, but are not limited to: bribery; large or serial fines or sanctions from regulatory bodies; significant adverse
legal judgments or settlements; hedging of company stock; or significant pledging of company stock.

B-3

2.2.

The board failed to act on takeover offers where the majority of shares are tendered;

2.3.

At the previous board election, any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to address the
issue(s) that caused the high withhold/against vote;

2.4.

The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the majority of votes cast at the
most recent shareholder meeting at which shareholders voted on the say-on-pay frequency; or

2.5.

The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received a plurality, but not a majority, of
the votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency, taking into account:



The boards rationale for selecting a frequency that is different from the frequency that received a plurality;



The companys ownership structure and vote results;



ISS analysis of whether there are compensation concerns or a history of problematic compensation practices; and



The previous years support level on the companys say-on-pay proposal.

3. Composition

Attendance at
Board and Committee Meetings:

3.1.

Generally vote against or withhold from directors (except new nominees, who should be considered case-by-
case(4)) who attend less than 75 percent of the aggregate of their board and committee meetings for the period for which they served, unless an acceptable reason for absences is disclosed in the
proxy or another SEC filing. Acceptable reasons for director absences are generally limited to the following:



Medical issues/illness;



Family emergencies; and



Missing only one meeting (when the total of all meetings is three or fewer).

3.2.

If the proxy disclosure is unclear and insufficient to determine whether a director attended at least 75 percent of the aggregate of his/her board and
committee meetings during his/her period of service, vote against or withhold from the director(s) in question.

Overboarded
Directors:

Vote against or withhold from individual directors who:

3.3.

Sit on more than six public company boards; or

3.4.

Are CEOs of public companies who sit on the boards of more than two public companies besides their own  withhold only at their outside boards(5).

4. Independence

Vote against or withhold from Inside Directors and Affiliated Outside Directors when:

4.1.

The inside or affiliated outside director serves on any of the three key committees: audit, compensation, or nominating;

4.2.

The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee;

4.3.

The company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the functions of such a committee; or

4.4.

Independent directors make up less than a majority of the directors.

Proxy Access

ISS supports proxy access as an
important shareholder right, one that is complementary to other best -practice corporate governance features. However, in the absence of a uniform standard, proposals to enact proxy access may vary widely; as such, ISS is not setting forth specific
parameters at this time and will take a case-by-case approach in evaluating these proposals.

Vote case-by-case on proposals to enact proxy access,
taking into account, among other factors:



Company-specific factors; and



Proposal-specific factors, including:



The ownership thresholds proposed in the resolution (i.e., percentage and duration);



The maximum proportion of directors that shareholders may nominate each year; and



The method of determining which nominations should appear on the ballot if multiple shareholders submit nominations.

(4)

For new nominees only, schedule conflicts due to commitments made prior to their appointment to the board are considered if disclosed in the proxy or another
SEC filing.

(5)

Although all of a CEOs subsidiary boards will be counted as separate boards, ISS will not recommend a withhold vote from the CEO of a parent company
board or any of the controlled (>50 percent ownership) subsidiaries of that parent, but will do so at subsidiaries that are less than 50 percent controlled and boards outside the parent/subsidiary relationships.

B-4

Proxy ContestsVoting for Director Nominees in Contested Elections

Vote case-by-case on the election of directors in contested elections, considering the following factors:



Long-term financial performance of the target company relative to its industry;



Managements track record;



Background to the proxy contest;



Nominee qualifications and any compensatory arrangements;



Strategic plan of dissident slate and quality of critique against management;



Likelihood that the proposed goals and objectives can be achieved (both slates); and



Stock ownership positions.

When the
addition of shareholder nominees to the management card (proxy access nominees) results in a number of nominees on the management card which exceeds the number of seats available for election, vote case-by-case considering the same
factors listed above.

Shareholder Rights & Defenses

Poison Pills- Management Proposals to Ratify Poison Pill

Vote case-by-case on management proposals on poison pill ratification, focusing on the features of the shareholder rights plan. Rights plans should
contain the following attributes:



No lower than a 20% trigger, flip-in or flip-over;



A term of no more than three years;



No dead-hand, slow-hand, no-hand or similar feature that limits the ability of a future board to redeem the pill;



Shareholder redemption feature (qualifying offer clause); if the board refuses to redeem the pill 90 days after a qualifying offer is announced, 10 percent of
the shares may call a special meeting or seek a written consent to vote on rescinding the pill.

In addition, the rationale for
adopting the pill should be thoroughly explained by the company. In examining the request for the pill, take into consideration the companys existing governance structure, including: board independence, existing takeover defenses, and any
problematic governance concerns.

Vote against proposals to adopt a poison pill for the stated purpose of protecting a companys net operating losses (NOL) if the term of the pill
would exceed the shorter of three years and the exhaustion of the NOL.

Vote case-by-case on management proposals for poison pill ratification,
considering the following factors, if the term of the pill would be the shorter of three years (or less) and the exhaustion of the NOL:

Shareholder protection mechanisms (sunset provision, or commitment to cause expiration of the pill upon exhaustion or expiration of NOLs);



The companys existing governance structure including: board independence, existing takeover defenses, track record of responsiveness to shareholders,
and any other problematic governance concerns; and



Any other factors that may be applicable.

Shareholder Ability to Act by Written Consent

Generally vote against management and shareholder proposals to restrict or prohibit shareholders ability to act by written consent.

Generally vote for management and shareholder proposals that provide shareholders with the ability to act by written consent, taking into account the
following factors:

Vote case-by-case on shareholder proposals if, in addition to the considerations above, the company has the following governance and antitakeover
provisions:



An unfettered(6) right for shareholders to call special meetings at a 10 percent threshold;



A majority vote standard in uncontested director elections;



No non-shareholder-approved pill; and



An annually elected board.

(6)

Unfettered means no restrictions on agenda items, no restrictions on the number of shareholders who can group together to reach the 10 percent
threshold, and only reasonable limits on when a meeting can be called: no greater than 30 days after the last annual meeting and no greater than 90 prior to the next annual meeting.

B-5

CAPITAL/RESTRUCTURING

Common Stock Authorization

Vote for proposals
to increase the number of authorized common shares where the primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants support.

Vote against proposals at companies with more than one class of common stock to increase the number of authorized shares of the class of common stock
that has superior voting rights.

Vote against proposals to increase the number of authorized common shares if a vote for a reverse stock split on
the same ballot is warranted despite the fact that the authorized shares would not be reduced proportionally.

Vote case-by-case on all other
proposals to increase the number of shares of common stock authorized for issuance. Take into account company-specific factors that include, at a minimum, the following:



Past Board Performance:

o

The companys use of authorized shares during the last three years



The Current Request:

o

Disclosure in the proxy statement of the specific purposes of the proposed increase;

o

Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request; and

o

The dilutive impact of the request as determined by an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that
reflects the companys need for shares and total shareholder returns.

Dual Class Structure

Generally vote against proposals to create a new class of common stock, unless:



The company discloses a compelling rationale for the dual-class capital structure, such as:



The companys auditor has concluded that there is substantial doubt about the companys ability to continue as a going concern; or



The new class of shares will be transitory;



The new class is intended for financing purposes with minimal or no dilution to current shareholders in both the short term and long term; and



The new class is not designed to preserve or increase the voting power of an insider or significant shareholder.

Preferred Stock Authorization

Vote for
proposals to increase the number of authorized preferred shares where the primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants support.

Vote against proposals at companies with more than one class or series of preferred stock to increase the number of authorized shares of the class or
series of preferred stock that has superior voting rights.

Vote case-by-case on all other proposals to increase the number of shares of preferred
stock authorized for issuance. Take into account company-specific factors that include, at a minimum, the following:



Past Board Performance:

o

The companys use of authorized preferred shares during the last three years;



The Current Request:

o

Disclosure in the proxy statement of the specific purposes for the proposed increase;

o

Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request;

o

In cases where the company has existing authorized preferred stock, the dilutive impact of the request as determined by an allowable increase calculated by
ISS (typically 100 percent of existing authorized shares) that reflects the companys need for shares and total shareholder returns; and

o

Whether the shares requested are blank check preferred shares that can be used for antitakeover purposes.

Mergers and Acquisitions

Vote case-by-case on
mergers and acquisitions. Review and evaluate the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including:



Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial
starting point for assessing valuation reasonableness, emphasis is placed on the offer premium, market reaction and strategic rationale.



Market reaction - How has the market responded to the proposed deal? A negative market reaction should cause closer scrutiny of a deal.

B-6



Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or
optimistic, but reasonably achievable. Management should also have a favorable track record of successful integration of historical acquisitions.



Negotiations and process - Were the terms of the transaction negotiated at arms-length? Was the process fair and equitable? A fair process helps to
ensure the best price for shareholders. Significant negotiation wins can also signify the deal makers competency. The comprehensiveness of the sales process (e.g., full auction, partial auction, no auction) can also affect
shareholder value.



Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the
result of potential conflicts, the directors and officers of the company may be more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests may have influenced these directors and officers to
support or recommend the merger. The CIC figure presented in the ISS Transaction Summary section of this report is an aggregate figure that can in certain cases be a misleading indicator of the true value transfer from shareholders to
insiders. Where such figure appears to be excessive, analyze the underlying assumptions to determine whether a potential conflict exists.



Governance - Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the
transaction? If the governance profile is to change for the worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance.

COMPENSATION

Executive Pay Evaluation

Underlying all evaluations are five global principles that most investors expect corporations to adhere to in designing and administering
executive and director compensation programs:

1.

Maintain appropriate pay-for-performance alignment, with emphasis on long-term shareholder value: This principle encompasses overall executive pay practices,
which must be designed to attract, retain, and appropriately motivate the key employees who drive shareholder value creation over the long term. It will take into consideration, among other factors, the link between pay and performance; the mix
between fixed and variable pay; performance goals; and equity-based plan costs;

2.

Avoid arrangements that risk pay for failure: This principle addresses the appropriateness of long or indefinite contracts, excessive severance
packages, and guaranteed compensation;

3.

Maintain an independent and effective compensation committee: This principle promotes oversight of executive pay programs by directors with appropriate
skills, knowledge, experience, and a sound process for compensation decision-making (e.g., including access to independent expertise and advice when needed);

Avoid inappropriate pay to non-executive directors: This principle recognizes the interests of shareholders in ensuring that compensation to outside directors
does not compromise their independence and ability to make appropriate judgments in overseeing managers pay and performance. At the market level, it may incorporate a variety of generally accepted best practices.

There is a significant misalignment between CEO pay and company performance (pay for performance);



The company maintains significant problematic pay practices;



The board exhibits a significant level of poor communication and responsiveness to shareholders.

Vote against or withhold from the members of the Compensation Committee and potentially the full board if:



There is no MSOP on the ballot, and an against vote on an MSOP is warranted due to a pay for performance misalignment, problematic pay practices, or the lack
of adequate responsiveness on compensation issues raised previously, or a combination thereof;



The board fails to respond adequately to a previous MSOP proposal that received less than 70 percent support of votes cast;



The company has recently practiced or approved problematic pay practices, including option repricing or option backdating; or



The situation is egregious.

Vote
against an equity plan on the ballot if:



A pay for performance misalignment is found, and a significant portion of the CEOs misaligned pay is attributed to non-performance-based equity awards,
taking into consideration:

o

Magnitude of pay misalignment;

o

Contribution of non-performance-based equity grants to overall pay; and

o

The proportion of equity awards granted in the last three fiscal years concentrated at the named executive officer (NEO) level.

B-7

Primary Evaluation Factors for Executive Pay

Pay-for-Performance Evaluation

ISS
annually conducts a pay-for-performance analysis to identify strong or satisfactory alignment between pay and performance over a sustained period. With respect to companies in the Russell 3000 index, this analysis considers the following:

1.

Peer Group(7) Alignment:



The degree of alignment between the companys annualized TSR rank and the CEOs annualized total pay rank within a peer group, each measured over a
three-year period.



The multiple of the CEOs total pay relative to the peer group median.

2.

Absolute Alignment  the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years  i.e., the difference
between the trend in annual pay changes and the trend in annualized TSR during the period.

If the above analysis demonstrates
significant unsatisfactory long-term pay-for-performance alignment or, in the case of non-Russell 3000 index companies, misaligned pay and performance are otherwise suggested, our analysis may include any of the following qualitative factors, if
they are relevant to the analysis to determine how various pay elements may work to encourage or to undermine long-term value creation and alignment with shareholder interests:



The ratio of performance- to time-based equity awards;



The overall ratio of performance-based compensation;



The completeness of disclosure and rigor of performance goals;



The companys peer group benchmarking practices;



Actual results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and relative to peers;



Special circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g., bi-annual awards);



Realizable pay(8) compared to grant pay; and



Any other factors deemed relevant.

Problematic Pay Practices

The focus is
on executive compensation practices that contravene the global pay principles, including:

Pay elements that are not directly based on performance are generally evaluated
case-by-case considering the context of a companys overall pay program and demonstrated pay-for-performance philosophy. Please refer to ISS Compensation FAQ document for detail on specific pay practices that have been identified as
potentially problematic and may lead to negative recommendations if they are deemed to be inappropriate or unjustified relative to executive pay best practices. The list below highlights the problematic practices that carry significant weight in
this overall consideration and may result in adverse vote recommendations:

The revised peer group is generally comprised of 14-24 companies that are selected using market cap, revenue (or assets for certain financial firms), GICS
industry group and companys selected peers GICS industry group with size constraints, via a process designed to select peers that are closest to the subject company in terms of revenue/assets and industry and also within a market cap
bucket that is reflective of the companys.

(8)

ISS research reports will include realizable pay for S&P1500 companies.

B-8

Options Backdating

The following factors should be examined case-by-case to allow for distinctions to be made between sloppy plan administration versus
deliberate action or fraud:



Reason and motive for the options backdating issue, such as inadvertent vs. deliberate grant date changes;



Duration of options backdating;



Size of restatement due to options backdating;



Corrective actions taken by the board or compensation committee, such as canceling or re-pricing backdated options, the recouping of option gains on backdated
grants; and



Adoption of a grant policy that prohibits backdating, and creates a fixed grant schedule or window period for equity grants in the future.

Board Communications and Responsiveness

Consider the following factors case-by-case when evaluating ballot items related to executive pay on the boards responsiveness to investor input and
engagement on compensation issues:



Failure to respond to majority-supported shareholder proposals on executive pay topics; or



Failure to adequately respond to the companys previous say-on-pay proposal that received the support of less than 70 percent of votes cast, taking into
account:

o

The companys response, including:



Disclosure of engagement efforts with major institutional investors regarding the issues that



contributed to the low level of support;



Specific actions taken to address the issues that contributed to the low level of support;



Other recent compensation actions taken by the company;

o

Whether the issues raised are recurring or isolated;

o

The companys ownership structure; and

o

Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.

Frequency of Advisory Vote on Executive Compensation (Say When on Pay)

Vote for annual advisory votes on compensation, which provide the most consistent and clear communication channel for shareholder concerns about
companies executive pay programs.

Voting on Golden Parachutes in an Acquisition, Merger, Consolidation, or Proposed Sale Vote
case-by-case on say on Golden Parachute proposals, including consideration of existing change-in-control arrangements maintained with named executive officers rather than focusing primarily on new or extended arrangements.

Features that may result in an against recommendation include one or more of the following, depending on the number, magnitude, and/or timing of
issue(s):

Excessive golden parachute payments (on an absolute basis or as a percentage of transaction equity value); or



Recent amendments that incorporate any problematic features (such as those above) or recent actions (such as extraordinary equity grants) that may make
packages so attractive as to influence merger agreements that may not be in the best interests of shareholders; or



The companys assertion that a proposed transaction is conditioned on shareholder approval of the golden parachute advisory vote.

Recent amendment(s) that incorporate problematic features will tend to carry more weight on the overall analysis. However, the presence of multiple legacy
problematic features will also be closely scrutinized.

In cases where the golden parachute vote is incorporated into a companys advisory vote
on compensation (management say-on-pay), ISS will evaluate the say-on-pay proposal in accordance with these guidelines, which may give higher weight to that component of the overall evaluation.

Equity-Based and Other Incentive Plans

Vote
case-by-case on equity-based compensation plans. Vote against the equity plan if any of the following factors apply:



The total cost of the companys equity plans is unreasonable;



The plan expressly permits repricing;



A pay-for-performance misalignment is found;



The companys three year burn rate exceeds the burn rate cap of its industry group;



The plan has a liberal change-of-control definition; or



The plan is a vehicle for problematic pay practices.

B-9

Social/Environmental Issues

Global Approach

Issues covered under the policy
include a wide range of topics, including consumer and product safety, environment and energy, labor standards and human rights, workplace and board diversity, and corporate political issues. While a variety of factors goes into each analysis, the
overall principle guiding all vote recommendations focuses on how the proposal may enhance or protect shareholder value in either the short or long term.

Generally vote case-by-case, taking into consideration whether implementation of the proposal is likely to enhance or protect shareholder value, and, in
addition, the following will also be considered:



If the issues presented in the proposal are more appropriately or effectively dealt with through legislation or government regulation;



If the company has already responded in an appropriate and sufficient manner to the issue(s) raised in the proposal;



Whether the proposals request is unduly burdensome (scope or timeframe) or overly prescriptive;



The companys approach compared with any industry standard practices for addressing the issue(s) raised by the proposal;



If the proposal requests increased disclosure or greater transparency, whether or not reasonable and sufficient information is currently available to
shareholders from the company or from other publicly available sources; and



If the proposal requests increased disclosure or greater transparency, whether or not implementation would reveal proprietary or confidential information that
could place the company at a competitive disadvantage.

Generally vote for
proposals requesting greater disclosure of a companys political contributions and trade association spending policies and activities, considering:



The companys current disclosure of policies and oversight mechanisms related to its direct political contributions and payments to trade associations or
other groups that may be used for political purposes, including information on the types of organizations supported and the business rationale for supporting these organizations; and



Recent significant controversies, fines, or litigation related to the companys political contributions or political activities.

Vote against proposals barring a company from making political contributions. Businesses are affected by legislation at the federal, state, and local
level; barring political contributions can put the company at a competitive disadvantage.

Vote against proposals to publish in newspapers and other
media a companys political contributions. Such publications could present significant cost to the company without providing commensurate value to shareholders.

Political Ties

Generally vote against
proposals asking a company to affirm political nonpartisanship in the workplace, so long as:



There are no recent, significant controversies, fines, or litigation regarding the companys political contributions or



trade association spending; and

The company has procedures in place to ensure that employee contributions to company-sponsored political action committees (PACs) are strictly voluntary and
prohibit coercion.

Vote against proposals asking for a list of company executives, directors, consultants, legal counsels,
lobbyists, or investment bankers that have prior government service and whether such service had a bearing on the business of the company. Such a list would be burdensome to prepare without providing any meaningful information to shareholders.

B-10

8. Foreign Private Issuers Listed on U.S. Exchanges

Vote against (or withhold from) non-independent director nominees at companies which fail to meet the following criteria: a majority-independent board,
and the presence of an audit, a compensation, and a nomination committee, each of which is entirely composed of independent directors.

Where the
design and disclosure levels of equity compensation plans are comparable to those seen at U.S. companies, U.S. compensation policy will be used to evaluate the compensation plan proposals. Otherwise, they, and all other voting items, will be
evaluated using the relevant ISS regional or market proxy voting guidelines.

Disclosure/Disclaimer

This document and all of the information contained in it, including without limitation all text, data, graphs, and charts (collectively, the
Information) is the property of Institutional Shareholder Services Inc. (ISS), its subsidiaries, or, in some cases third party suppliers.

The Information has not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body.
None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), or a promotion or recommendation of, any security, financial product or other investment vehicle or any trading strategy, and ISS does not endorse, approve,
or otherwise express any opinion regarding any issuer, securities, financial products or instruments or trading strategies. The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information.

ISS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION AND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY, AND FITNESS for A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.

Without limiting any of the foregoing and to the maximum extent permitted by law, in no event shall ISS have any liability regarding any of the
Information for any direct, indirect, special, punitive, consequential (including lost profits), or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by
applicable law be excluded or limited.

B-11

DIREXION SHARES ETF TRUST

PART C

OTHER INFORMATION

Item 28. Exhibits

(a)

(i)

Certificate of Trust dated April 23, 2008 is herein incorporated by reference from the Direxion Shares ETF Trusts (the Trust) Initial
Registration Statement on Form N-1A filed with the Securities and Exchange Commission (SEC) on April 30, 2008.

(ii)

Trust Instrument is herein incorporated by reference from the Pre-Effective Amendment No. 1 to the Trusts Registration Statement filed on Form N-1A
with the SEC on August 20, 2008.

(b)

By-Laws dated April 23, 2008 are herein incorporated by reference from the Pre-Effective Amendment No. 1 to the Trusts Registration Statement filed on
Form N-1A with the SEC on August 20, 2008.

(c)

Shareholders Rights are contained in Articles IV, V, VI, IX, and X of the Trusts Trust Instrument and Articles V, VI, VII, VIII and IX of the
Trusts By-Laws.

(d)

(i)(A)

Form of Investment Advisory Agreement between the Trust and Rafferty Asset Management, LLC (RAM) is herein incorporated by reference from the
Pre-Effective Amendment No. 1 to the Trusts Registration Statement filed on Form N-1A with the SEC on August 20, 2008.

(i)(B)

Amended Schedule A of the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 4 to the Trusts
Registration Statement filed on Form N-1A with the SEC on April 1, 2009.

(i)(C)

Second Amended Schedule A of the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 10 to the
Trusts Registration Statement filed on Form N-1A with the SEC on March 11, 2010.

(i)(D)

Third Amended Schedule A of the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 11 to the
Trusts Registration Statement filed on Form N-1A with the SEC on April 16, 2010.

(i)(E)

Fourth Amended Schedule A of the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 14 to the
Trusts Registration Statement filed on Form N-1A with the SEC on July 13, 2010.

(i)(F)

Fifth Amended Schedule A of the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 20 to the
Trusts Registration Statement filed on Form N-1A with the SEC on March 10, 2011.

(i)(G)

Sixth Amended Schedule A of the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 28 to the
Trusts Registration Statement filed on Form N-1A with the SEC on June 13, 2011.

(i)(H)

Seventh Amended Schedule A of the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 40 to the
Trusts Registration Statement filed on Form N-1A with the SEC on August 25, 2011.

1

(i)(I)

Eighth Amended Schedule A of the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 77 to the
Trusts Registration Statement filed on Form N-1A with the SEC on August 29, 2012.

(i)(J)

Ninth Amended Schedule A to the Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 85to the Trusts
Registration Statement filed on Form N-1A with the SEC on June 21, 2013.

(i)(K)

Tenth Amended Schedule A to Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 89 to the Trusts
Registration Statement filed on Form N-1A with the SEC on September 16, 2013.

(i)(L)

Eleventh Amended Schedule A to Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 95 to the Trusts
Registration Statement filed on Form N-1A with the SEC on December 6, 2013.

(i)(M)

Twelfth Amended Schedule A to Investment Advisory Agreement is herein incorporated by reference from the Post-Effective Amendment No. 102 to the Trusts
Registration Statement filed on Form N-1A with the SEC on May 23, 2013.

(e)

(i)(A)

Form of Distribution Agreement between the Trust and Foreside Fund Services, LLC (Foreside) is herein incorporated by reference from the
Pre-Effective Amendment No. 1 to the Trusts Registration Statement filed on Form N-1A with the SEC on August 20, 2008.

(i)(B)

Amended Exhibit A to the Distribution Agreement is herein incorporated by reference from the Post-Effective Amendment No. 4 to the Trusts Registration
Statement filed on Form N-1A with the SEC on April 1, 2009.

(i)(C)

Second Amended Exhibit A to the Distribution Agreement is herein incorporated by reference from the Post-Effective Amendment No. 10 to the Trusts
Registration Statement filed on Form N-1A with the SEC on March 11, 2010.

(i)(D)

Third Amended Exhibit A to the Distribution Agreement is herein incorporated by reference from the Post-Effective Amendment No. 11 to the Trusts
Registration Statement filed on Form N-1A with the SEC on April 16, 2010.

(i)(E)

Fourth Amended Exhibit A to the Distribution Agreement is herein incorporated by reference from the Post-Effective Amendment No. 14 to the Trusts
Registration Statement filed on Form N-1A with the SEC on July 13, 2010.

(i)(F)

Fifth Amended Exhibit A to the Distribution Agreement is herein incorporated by reference from the Post-Effective Amendment No. 20 to the Trusts
Registration Statement filed on Form N-1A with the SEC on March 10, 2011.

(i)(G)

Sixth Amended Exhibit A to the Distribution Agreement is herein incorporated by reference from the Post-Effective Amendment No. 28 to the Trusts
Registration Statement filed on Form N-1A with the SEC on June 13, 2011.

(i)(H)

Seventh Amended Exhibit A to the Distribution Agreement is herein incorporated by reference from the Post-Effective Amendment No. 70 to the Trusts
Registration Statement filed on Form N-1A with the SEC on June 29, 2012.

(ii)

Form of Authorized Participant Agreement is herein incorporated by reference from the Pre-Effective Amendment No. 1 to the Trusts Registration
Statement filed on Form N-1A with the SEC on August 20, 2008.

2

(f)

Bonus, profit sharing contracts  None.

(g)

(i)(A)

Form of Custody Agreement between the Trust and The Bank of New York (BONY) is herein incorporated by reference from the Pre-Effective Amendment
No. 1 to the Trusts Registration Statement filed on Form N-1A with the SEC on August 20, 2008.

(i)(B)

Amended Schedule II to the Custody Agreement is herein incorporated by reference from the Post-Effective Amendment No. 4 to the Trusts Registration
Statement filed on Form N-1A with the SEC on April 1, 2009.

(i)(C)

Second Amended Schedule II to the Custody Agreement is herein incorporated by reference from the Post-Effective Amendment No. 10 to the Trusts
Registration Statement filed on Form N-1A with the SEC on March 11, 2010.

(i)(D)

Third Amended Schedule II to the Custody Agreement is herein incorporated by reference from the Post-Effective Amendment No. 11 to the Trusts
Registration Statement filed on Form N-1A with the SEC on April 16, 2010.

(i)(E)

Fourth Amended Schedule II to the Custody Agreement is herein incorporated by reference from the Post-Effective Amendment No. 14 to the Trusts
Registration Statement filed on Form N-1A with the SEC on July 13, 2010.

(i)(F)

Fifth Amended Schedule II to the Custody Agreement is herein incorporated by reference from the Post-Effective Amendment No. 28 to the Trusts
Registration Statement filed on Form N-1A with the SEC on June 13, 2011.

(i)(G)

Sixth Amended Schedule II to the Custody Agreement is herein incorporated by reference from the Post-Effective Amendment No. 40 to the Trusts
Registration Statement filed on Form N-1A with the SEC on August 25, 2011.

(i)(H)

Seventh Amended Schedule II to the Custody Agreement is herein incorporated by reference from the Post-Effective Amendment No. 80 to the Trusts
Registration Statement filed on Form N-1A with the SEC on November 30, 2012.

(i)(I)

Eighth Amended Schedule II to the Custody Agreement is herein incorporated by reference from the Post-Effective Amendment No. 85to the Trusts
Registration Statement filed on Form N-1A with the SEC on June 21, 2013.

(ii)

Custody Agreement between the Trust and U.S Bank National Association is herein incorporated by reference from the Post-Effective Amendment No. 89 to the
Trusts Registration Statement filed on Form N-1A with the SEC on September 16, 2013.

(h)

(i)(A)

Form of Transfer Agency and Service Agreement between the Trust and BONY is herein incorporated by reference from the Pre-Effective Amendment No. 1 to the
Trusts Registration Statement filed on Form N-1A with the SEC on August 20, 2008.

(i)(B)

Amended Appendix I to the Transfer Agency and Service Agreement is herein incorporated by reference from the Post-Effective Amendment No. 4 to the
Trusts Registration Statement filed on Form N-1A with the SEC on April 1, 2009.

(i)(C)

Second Amended Appendix I to the Transfer Agency and Service Agreement is herein incorporated by reference from the Post-Effective Amendment No. 10 to the
Trusts Registration Statement filed on Form N-1A with the SEC on March 11, 2010.

3

(i)(D)

Third Amended Appendix I to the Transfer Agency and Service Agreement is herein incorporated by reference from the Post-Effective Amendment No. 11 to the
Trusts Registration Statement filed on Form N-1A with the SEC on April 16, 2010.

(i)(E)

Fourth Amended Appendix I to the Transfer Agency and Service Agreement is herein incorporated by reference from the Post-Effective Amendment No. 14 to the
Trusts Registration Statement filed on Form N-1A with the SEC on July 13, 2010.

(i)(F)

Fifth Amended Appendix I to the Transfer Agency and Service Agreement is herein incorporated by reference from the Post-Effective Amendment No. 40 to the
Trusts Registration Statement filed on Form N-1A with the SEC on August 25, 2011.

(i)(G)

Sixth Amended Appendix I to the Transfer Agency and Service Agreement is herein incorporated by reference from the Post-Effective Amendment No. 80 to the
Trusts Registration Statement filed on Form N-1A with the SEC on November 30, 2012.

(i)(H)

Seventh Amended Appendix I to the Transfer Agency and Service Agreement is herein incorporated by reference from the Post-Effective Amendment No. 85 to the
Trusts Registration Statement filed on Form N-1A with the SEC on June 21, 2013.

(ii)

Transfer Agency and Service Agreement between the Trust and U.S. Bancorp Fund Services, LLC is herein incorporated by reference from the Post-Effective
Amendment No. 89 to the Trusts Registration Statement filed on Form N-1A with the SEC on September 16, 2013.

(iii)(A)

Fund Administration Agreement between the Trust and U. S. Bancorp Fund Services, LLC is herein incorporated by reference from the Post-Effective Amendment
No. 80 to the Trusts Registration Statement filed on Form N-1A with the SEC on November 30, 2012.

(iv)(A)

Fund Accounting Agreement between the Trust and BONY is herein incorporated by reference from the Post-Effective Amendment No. 80 to the Trusts
Registration Statement filed on Form N-1A with the SEC on November 30, 2012.

(iv)(B)

Amended Exhibit A to the Fund Accounting Agreement between Trust and BONY is herein incorporated by reference from the Post-Effective Amendment No. 85 to the
Trusts Registration Statement filed on Form N-1A with the SEC on June 21, 2013.

(v)

Fund Accounting Agreement between the Trust and U.S. Bancorp Fund Services, LLC is herein incorporated by reference from the Post-Effective Amendment No. 89
to the Trusts Registration Statement filed on Form N-1A with the SEC on September 16, 2013.

(vi)(A)

Advisory Fee Waiver Agreement is herein incorporated by reference from the Post-Effective Amendment No. 69 to the Trusts Registration Statement filed
on Form N-1A with the SEC on June 13, 2012.

(vi)(B)

Amended Schedule A to the Advisory Fee Waiver Agreement is herein incorporated by reference from the Post-Effective Amendment No. 80 to the Trusts
Registration Statement filed on Form N-1A with the SEC on November 30, 2012.

(vi)(C)

Amended Schedule A to the Advisory Fee Waiver Agreement is herein incorporated by reference from the Post-Effective Amendment No. 89 to the Trusts
Registration Statement filed on Form N-1A with the SEC on September 16, 2013.

(vi)(D)

Amended Schedule A to the Advisory Fee Waiver Agreement is herein incorporated by reference from the Post-Effective Amendment No. 95 to the Trusts
Registration Statement filed on Form N-1A with the SEC on December 6, 2013.

4

(vii)(A)

Amended and Restated Operating Expense Limitation Agreement is herein incorporated by reference from the Post-Effective Amendment No. 95 to the Trusts
Registration Statement filed on Form N-1A with the SEC on December 6, 2013.

(vii)(B)

Amended Schedule A to the Operating Expense Limitation Agreement is herein incorporated by reference from the Post-Effective Amendment No. 102 to the
Trusts Registration Statement filed on Form N-1A with the SEC on May 23, 2013.

(i)

Opinion and consent of counsel  to be filed by amendment.

(j)

(i)

Power of Attorney and Certified Resolutions is herein incorporated by reference from the Post-Effective Amendment No. 89 to the Trusts Registration
Statement filed on Form N-1A with the SEC on September 16, 2013.

(ii)

Power of Attorney is herein incorporated by reference from the Post-Effective Amendment No. 103 to the Trusts Registration Statement filed on Form N-1A
with the SEC on May 30, 2014.

(k)

Financial Statements omitted from prospectus  None.

(l)

Initial Capital Agreement is herein incorporated by reference from the Pre-Effective Amendment No. 1 to the Trusts Registration Statement filed on Form
N-1A with the SEC on August 20, 2008.

(m)

(i)(A)

Rule 12b-1 Distribution Plan is herein incorporated by reference from the Pre-Effective Amendment No. 1 to the Trusts Registration Statement filed on
Form N-1A with the SEC on August 20, 2008.

(i)(B)

Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 4 to the Trusts
Registration Statement filed on Form N-1A with the SEC on April 1, 2009.

(i)(C)

Second Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 10 to the Trusts
Registration Statement filed on Form N-1A with the SEC on March 11, 2010.

(i)(D)

Third Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 11 to the Trusts
Registration Statement filed on Form N-1A with the SEC on April 16, 2010.

(i)(E)

Fourth Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 14 to the Trusts
Registration Statement filed on Form N-1A with the SEC on July 13, 2010.

(i)(F)

Fifth Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 20 to the Trusts
Registration Statement filed on Form N-1A with the SEC on March 10, 2011.

(i)(G)

Sixth Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 40 to the Trusts
Registration Statement filed on Form N-1A with the SEC on August 25, 2011.

(i)(H)

Seventh Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 77 to the Trusts
Registration Statement filed on Form N-1A with the SEC on August 29, 2012.

5

(i)(I)

Eighth Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 85to the Trusts
Registration Statement filed on Form N-1A with the SEC on June 21, 2013.

(i)(J)

Ninth Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 89 to the Trusts
Registration Statement filed on Form N-1A with the SEC on September 16, 2013.

(i)(K)

Tenth Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 95 to the Trusts
Registration Statement filed on Form N-1A with the SEC on December 6, 2013.

(i)(L)

Eleventh Amended Schedule A to Rule 12b-1 Distribution Plan is herein incorporated by reference from the Post-Effective Amendment No. 102 to the Trusts
Registration Statement filed on Form N-1A with the SEC on May 23, 2013.

(n)

Rule 18f-3 Plan  None.

(o)

Reserved.

(p)

(i)

Code of Ethics for the Trust and RAM is herein incorporated by reference from the Post-Effective Amendment No. 77 to the Trusts Registration Statement
filed on Form N-1A with the SEC on August 29, 2012.

Item 29. Persons Controlled by or Under Common Control with Registrant

Immediately prior to the public offering of the Registrants shares for each series, the following persons may be deemed
individually to control the Funds or the Trust:

Rafferty Asset Management, LLC will be the sole shareholder immediately
prior to the public offering of each Fund.

Item 30. Indemnification

Article IX of the Trust Instrument of the Registrant provides as follows:

Section 1. LIMITATION OF LIABILITY. All persons contracting
with or having any claim against the Trust or a particular Series shall look only to the assets of the Trust or Assets belonging to such Series, respectively, for payment under such contract or claim; and neither the Trustees nor any of the
Trusts officers or employees, whether past, present or future, shall be personally liable therefor. Every written instrument or obligation on behalf of the Trust or any Series may contain a statement to the foregoing effect, but the absence of
such statement shall not operate to make any Trustee or officer of the Trust liable thereunder. Provided they have exercised reasonable care and have acted under the reasonable belief that their actions are in the best interest of the Trust, the
Trustees and officers of the Trust shall not be responsible or liable for any act or omission or for neglect or wrongdoing of them or any officer, agent, employee, investment adviser, principal underwriter or independent contractor of the Trust, but
nothing contained in this Trust Instrument or in the Delaware Act shall protect any Trustee or officer of the Trust against liability to the Trust or to Shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.

Section 2. INDEMNIFICATION.

(a)

Subject to the exceptions and limitations contained in subsection (b) below:

6

(i)

every person who is, or has been, a Trustee or an officer, employee or agent of the Trust, including persons who act at the request of the Trust as
directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise (Covered Person) shall be indemnified by the Trust or the appropriate Series to the
fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him or her in connection with any claim, action, suit or proceeding in which he or she becomes involved as a party or otherwise by virtue of
his or her being or having been a Covered Person and against amounts paid or incurred by him or her in the settlement thereof.

(ii)

as used herein, the words claim, action, suit or proceeding shall apply to all claims, actions,
suits or proceedings (civil, criminal or other, including appeals), actual or threatened, and the words liability and expenses shall include, without limitation, counsel fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.

(b)

No indemnification shall be provided hereunder to a Covered Person:

(i)

who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office or (B) not to have acted in good faith in the reasonable belief that his or her action was in the
best interest of the Trust; or

(ii)

in the event of a settlement, if there has been a determination that such Covered Person engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or her office: (A) by the court or other body approving the settlement; (B) by at least a majority of those Trustees who are neither Interested Persons of the
Trust nor are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); or (C) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a
full trial-type inquiry).

(c)

The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled and shall inure to the benefit of the heirs, executors and administrators of a Covered Person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel other than Covered Persons may be entitled by contract or otherwise under law.

(d)

To the maximum extent permitted by applicable law, expenses in connection with the preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in subsection (a) of this Section shall be paid by the Trust or applicable Series from time to time prior to final disposition thereof upon receipt of an undertaking by or on behalf of such Covered
Person that such amount will be paid over by him or her to the Trust or applicable Series if it is ultimately determined that he or she is not entitled to indemnification under this Section.

(e)

Any repeal or modification of this Article IX by the Shareholders, or adoption or modification of any other provision of this Trust Instrument or
the By-laws inconsistent with this Article, shall be prospective only, to the extent that such, repeal or modification would, if applied retrospectively, adversely affect any limitation on the liability of any Covered Person or indemnification
available to any Covered Person with respect to any act or omission which occurred prior to such repeal, modification or adoption.

Section 3. INDEMNIFICATION OF SHAREHOLDERS. If any Shareholder
or former Shareholder of any Series is held personally liable solely by reason of his or her being or having been a Shareholder and not because of his or her acts or omissions or for some other reason, the Shareholder or former Shareholder (or his
or her heirs, executors, administrators or other legal representatives or, in the case of any entity, its general successor) shall be entitled out of the Assets belonging to the applicable Series to be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust, on behalf of the affected Series, shall, upon request by such Shareholder or former Shareholder, assume the defense of any

7

claim made against him or her for any act or obligation of the Series and satisfy any judgment thereon from the Assets belonging to the Series.

Article IX, Section 3 of the By-laws of the Registrant provides as follows:

Section 3. Advance Payment of Indemnifiable Expenses. Expenses incurred by an agent in connection
with the preparation and presentation of a defense to any proceeding may be paid by the Trust from time to time prior to final disposition thereof upon receipt of an undertaking by, or on behalf of, such agent that such amount will be paid over by
him or her to the Trust if it is ultimately determined that he or she is not entitled to indemnification; provided, however, that (a) such agent shall have provided appropriate security for such undertaking, (b) the Trust is insured
against losses arising out of any such advance payments, or (c) either a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the proceeding, or independent legal counsel in a written opinion, shall have
determined, based upon a review of the readily available facts (as opposed to a trial-type inquiry or full investigation), that there is reason to believe that such agent will be found entitled to indemnification.

Section 7 of the Investment Advisory Agreement provides as follows:

The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust or any Fund
in connection with the matters to which this Agreement relate except a loss resulting from the willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and
duties under this Agreement. Any person, even though also an officer, partner, employee, or agent of the Adviser, who may be or become an officer, trustee, employee or agent of the Trust shall be deemed, when rendering services to the Trust or
acting in any business of the Trust, to be rendering such services to or acting solely for the Trust and not as an officer, partner, employee, or agent or one under the control or direction of the Adviser even though paid by it.

Section 6 of the Distribution Agreement provides as follows:

(a) The Trust agrees to indemnify and hold harmless the Distributor, its affiliates and each of their directors,
officers and employees and agents and any person who controls the Distributor within the meaning of Section 15 of the 1933 Act (any of the Distributor, its officers, employees, agents and directors or such control persons, for purposes of this
paragraph, a Distributor Indemnitee) against any loss, liability, claim, damages or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages or expense and reasonable counsel fees
incurred in connection therewith) arising out of or based upon (i) any claim that the Registration Statement, Prospectus, Statement of Additional Information, Product Description, shareholder reports, sales literature and advertisements
specifically approved by the Trust and Investment Adviser or other information filed or made public by the Trust (as from time to time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein (and in the case of the Prospectus, Statement of Additional Information and Product Description, in light of the circumstances under which they were made) not misleading under the 1933
Act, or any other statute or the common law, (ii) the breach by the Trust of any obligation, representation or warranty contained in this Agreement or (iii) the Trusts failure to comply in any material respect with applicable
securities laws.

The Trust does not agree to indemnify the Distributor or hold it harmless to the extent that the
statement or omission was made in reliance upon, and in conformity with, information furnished to the Trust by or on behalf of the Distributor. The Trust will also not indemnify any Distributor Indemnitee with respect to any untrue statement or
omission made in the Registration Statement, Prospectus, Statement of Additional Information or Product Description that is subsequently corrected in such document (or an amendment thereof or supplement thereto) if a copy of the Prospectus (or such
amendment or supplement) was not sent or given to the person asserting any such loss, liability, claim, damage or expense at or before the written confirmation to such person in any case where such delivery is required by the 1933 Act and the Trust
had notified the Distributor of the amendment or supplement prior to the

8

sending of the confirmation. In no case (i) is the indemnity of the Trust in favor of any Distributor Indemnitee to be deemed to protect the Distributor Indemnitee against any liability to
the Trust or its shareholders to which the Distributor Indemnitee would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations
under this Agreement, or (ii) is the Trust to be liable under its indemnity agreement contained in this Section with respect to any claim made against any Distributor Indemnitee unless the Distributor Indemnitee shall have notified the Trust in
writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon Distributor Indemnitee (or after Distributor Indemnitee shall have received
notice of service on any designated agent).

Failure to notify the Trust of any claim shall not relieve the Trust from any
liability that it may have to any Distributor Indemnitee against whom such action is brought unless failure or delay to so notify the Trust prejudices the Trusts ability to defend against such claim. The Trust shall be entitled to participate
at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any claims, but if the Trust elects to assume the defense, the defense shall be conducted by counsel chosen by it and satisfactory to
Distributor Indemnitee, defendant or defendants in the suit. In the event the Trust elects to assume the defense of any suit and retain counsel, Distributor Indemnitee, defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them. If the Trust does not elect to assume the defense of any suit, it will reimburse the Distributor Indemnitee, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by
them. The Trust agrees to notify the Distributor promptly of the commencement of any litigation or proceedings against it or any of its officers or Trustees in connection with the issuance or sale of any of the Creation Units or the Shares.

(b) The Distributor agrees to indemnify and hold harmless the Trust and each of its Trustees and officers and any
person who controls the Trust within the meaning of Section 15 of the 1933 Act (for purposes of this paragraph, the Trust and each of its Trustees and officers and its controlling persons are collectively referred to as the Trust
Affiliates) against any loss, liability, claim, damages or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages or expense and reasonable counsel fees incurred in connection
therewith) arising out of or based upon (i) the allegation of any wrongful act of the Distributor or any of its directors, officers, employees, (ii) the breach of any obligation, representation or warranty pursuant to this Agreement by the
Distributor, (iii) the Distributors failure to comply in any material respect with applicable securities laws, including applicable FINRA regulations, or (iv) any allegation that the Registration Statement, Prospectus, Statement of
Additional Information, Product Description, shareholder reports, any information or materials relating to the Funds (as described in section 3(g)) or other information filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements not misleading, insofar as such statement or omission was made in reliance upon, and in conformity
with information furnished to the Trust by or on behalf of the Distributor, it being understood that the Trust will rely upon certain information provided by the Distributor for use in the preparation of the Registration Statement, Prospectus,
Statement of Additional Information, Product Description, shareholder reports or other information relating to the Funds or made public by the Trust.

In no case (i) is the indemnity of the Distributor in favor of any Trust Affiliate to be deemed to protect any Trust
Affiliate against any liability to the Trust or its security holders to which such Trust Affiliate would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement, or (ii) is the Distributor to be liable under its indemnity agreement contained in this Section with respect to any claim made against any Trust Affiliate unless the Trust
Affiliate shall have notified the Distributor in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon the Trust Affiliate (or
after the Trust Affiliate shall have received notice of service on any designated agent).

9

Failure to notify the Distributor of any claim shall not relieve the Distributor
from any liability that it may have to the Trust Affiliate against whom such action is brought unless failure or delay to so notify the Distributor prejudices the Distributors ability to defend against such claim. The Distributor shall be
entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce the claim, but if the Distributor elects to assume the defense, the defense shall be conducted by counsel chosen by
it and satisfactory to the Trust, its officers and Board and to any controlling person or persons, defendant or defendants in the suit. In the event that Distributor elects to assume the defense of any suit and retain counsel, the Trust or
controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them. If the Distributor does not elect to assume the defense of any suit, it will reimburse the Trust, its
officers and Trustees or controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Distributor agrees to notify the Trust promptly of the commencement of any
litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of any of the Creation Units or the Shares.

(c) No indemnified party shall settle any claim against it for which it intends to seek indemnification from the
indemnifying party, under the terms of section 6(a) or 6(b) above, without the prior written notice to and consent from the indemnifying party, which consent shall not be unreasonably withheld. No indemnified or indemnifying party shall settle any
claim unless the settlement contains a full release of liability with respect to the other party in respect of such action. This section 6 shall survive the termination of this Agreement.

Section 13 of the Authorized Participant Agreement provides as follows:

(a) The Participant hereby agrees to indemnify and hold harmless the Distributor, the Funds, the Index Receipt
Agent, their respective subsidiaries, affiliates, directors, officers, employees, and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the 1933 Act (each an Indemnified Party), from and
against any loss, liability, cost, or expense (including attorneys fees) incurred by such Indemnified Party as a result of (i) any breach by the Participant of any provision of this Agreement; (ii) any failure on the part of the
Participant to perform any of its obligations set forth in this Agreement; (iii) any failure by the Participant to comply with applicable laws, including rules and regulations of self-regulatory organizations; (iv) actions of such
Indemnified Party in reliance upon any instructions issued in accordance with the Fund Documents, AP Handbook or Annex II (as each may be amended from time to time) reasonably believed by the Distributor and/or the Index Receipt Agent to be genuine
and to have been given by the Participant; or (v) the Participants failure to complete a Purchase Order or Redemption Order that has been accepted. The Participant understands and agrees that the Funds as third party beneficiaries to this
Agreement are entitled to proceed directly against the Participant in the event that the Participant fails to honor any of its obligations under this Agreement that benefit the Fund. The Distributor shall not be liable to the Participant for any
damages arising out of mistakes or errors in data provided to the Distributor, or out of interruptions or delays of communications with the Indemnified Parties who are service providers to the Fund, nor is the Distributor liable for any action,
representation, or solicitation made by the wholesalers of the Fund.

(b) The Distributor hereby agrees to
indemnify and hold harmless the Participant and the Index Receipt Agent, their respective subsidiaries, affiliates, directors, officers, employees, and agents, and each person, if any, who controls such persons within the meaning of Section 15
of the 1933 Act (each an Indemnified Party), from and against any loss, liability, cost, or expense (including attorneys fees) incurred by such Indemnified Party as a result of (i) any breach by the Distributor of any
provision of this Agreement; (ii) any failure on the part of the Distributor to perform any of its obligations set forth in this Agreement; (iii) any failure by the Distributor to comply with applicable laws, including rules and
regulations of self-regulatory organizations; or (iv) actions of such Indemnified Party in reliance upon any representations made in accordance with the Fund Documents and AP Handbook (as e ach may be amended from time to time) reasonably
believed by the Participant to be genuine and to have been given by the Distributor. The Participant shall not be liable to the Distributor for any damages arising out of mistakes or errors in data provided to the Participant, or out of
interruptions or delays of communications

10

with the Indemnified Parties who are service providers to the Fund, nor is the Participant liable for any action, representation, or solicitation made by the wholesalers of the Fund.

(c) The Funds, the Distributor, the Index Receipt Agent, or any person who controls such persons within the meaning of
Section 15 of the 1933 Act, shall not be liable to the Participant for any damages arising from any differences in performance between the Deposit Securities in a Fund Deposit and the Funds benchmark index.

The general effect of this Indemnification will be to indemnify the officers, trustees, employees and agents of the Registrant
from costs and expenses arising from any action, suit or proceeding to which they may be made a party by reason of their being or having been a trustee, officer, employee or agent of the Registrant, except where such action is determined to have
arisen out of the willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the trustees, officers, employees or agents office.

Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

Item 31. Business and Other Connections of Investment Adviser

Rafferty Asset Management, LLC (Rafferty) provides investment advisory services to all Funds of the Trust.
Rafferty was organized as a New York limited liability corporation in June 1997. Lawrence C. Rafferty controls Rafferty through his ownership in Rafferty Holdings, LLC. Raffertys offices are located at 1301 Avenue of the Americas (6th Avenue),
35th Floor, New York, New York 10019. Information as to the directors and officers of Rafferty is included in its current Form ADV filed with the SEC (File No. 801-54679).

(b) The following table identifies the officers of Foreside and their
positions, if any, with the Registrant. The business address of each of these individuals is Three Canal Plaza, Suite 100, Portland, Maine 04101.

Name

Position with Underwriter

Position with Registrant

Mark A. Fairbanks

President and Manager

None

Richard J. Berthy

Vice President, Treasurer and Manager

None

Jennifer E. Hoopes

Secretary

None

Nanette K. Chern

Vice President and Chief Compliance Officer

None

Lisa S. Clifford

Vice President and Managing Director of Compliance

None

Nishant Bhatnagar

Assistant Secretary

None

(c) Not applicable.

Item 33. Location of Accounts and Records

The books and records required to be maintained by Section 31(a) of the Investment Company Act of 1940, as amended, (the
1940 Act) are maintained in the physical possession of the Direxion Shares ETF Trusts investment adviser, subadviser, administrator, custodian, subcustodian, or transfer agent.

Item 34. Management Services

Not applicable.

Item 35. Undertakings

Not applicable.

12

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended,
the Registrant has duly caused this Post-Effective Amendment No. 104 to its Registration Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and the State of New York on
June 2, 2014.

DIREXION SHARES ETF TRUST

By:

/s/ Daniel D. ONeill*

Daniel D. ONeill

Chief Executive Officer

Pursuant to the requirements of the Securities Act, this Post-Effective Amendment
No. 104 to its Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Daniel D. ONeill*

Chief Executive Officer and

Chairman of the Board

June 2, 2014

Daniel D. ONeill

/s/ Gerald E. Shanley III*

Trustee

June 2, 2014

Gerald E. Shanley III

/s/ John Weisser*

Trustee

June 2, 2014

John Weisser

/s/ Eric W. Falkeis*

Principal Executive Officer

June 2, 2014

Eric Falkeis

/s/ Patrick J. Rudnick*

Principal Financial Officer

June 2, 2014

Patrick J. Rudnick

and Assistant Secretary

*By:

/s/ Angela Brickl

Angela Brickl, Attorney-In Fact pursuant to the Powers of Attorney filed with Post-Effective Amendment Nos. 89 and 103 to the Trusts
Registration Statement filed with the SEC on September 16, 2013 and May 30, 2014, respectively.